JSW Steel’s Seshagiri Rao expects steel prices to fall, bottom out in few weeks

New Delhi, Nov 30: Steel prices, which have already contracted by 15 percent in one month, may fall by another $15 a ton as the China factor looms over the global steel industry, said a senior executive from the industry. “Prices will fall. China has led the fall, as demand in its domestic market is weak,” Seshagiri Rao, Joint Managing Director and Group CFO, JSW Steel, said.
He said the prices have already fallen to $500-520 a ton range, from $600 a ton. The fall in prices has been accentuated by a continued increase in rates of raw materials. “While iron ore prices had fallen marginally, it has picked up again. Coking coal rates have also gone up,” said Rao.
Iron ore and coking coal are the two important raw materials used for making steel.
The combination of falling prices, and expensive raw materials, will hit margins, accepted Rao. “We will take a hit in one quarter. But it will largely depend on how much time it takes for the demand to recover, and for prices to start gaining,” he added.
Rao said that he expected prices to bottom out in the next few weeks, when the demand should revive.
Capacity utilization
The global steel industry’s capacity utilisation, which was 69.6 percent in December 2017, has picked up and the industry has added 68 million tons of steel in the first 10 months, as compared to last year. “Of this, 44 million tons is from China,” said Rao.
But China, hit by sanctions led by the Donald Trump administration in the US, can’t export. Experts expect Chinese exports to be lower this year, as compared to the 75 million tons in 2017.
Unfortunately, demand in the Chinese economy hasn’t held on to consume the extra steel. Demand there has tapered off in the last two months, leading to excess supply. “There is a liquidity problem, and sectors such as real estate and auto, haven’t been performing well,” said Rao.
With China expected to end the year with about 5 percent higher production than last year, there will be pressure on steel prices.
Rao added that Chinese exports may land in India, as US and Europe have closed borders.
Among raw materials, coking coal prices have shot up due to a supply disturbance in Australia. The Blackwater railway line in Queensland was shut due to fire.