Steel Business Briefing reports that Indian steel mills are mulling a price increase (of INR500/t) for the Sept-15 shipments. This surprises us.
Over the last year, Chinese steel prices have corrected c40%, Chinese steel exports are up c30%y-o-y and Indian steel prices are down c30%. The Indian steel mills have since aggressively lobbied the Indian government to introduce some sort of protection (both quantitative and qualitative) against cheap imports (from China, Korea and Japan).
The government is yet to formally respond to the pleas of the steel sector, but the Financial Express recently quoted India’s Finance Minister, Mr Arun Jaitley, as having asked the industry to enhance its competitiveness and stand on its own feet, rather than look for ‘band-aid’ solutions. The application for safeguard duties is still pending with the Director General of Safeguards (DGS)
Indian Rupee is depreciating, but not quite enough…
The INR depreciated c3% in Aug-15 versus the USD. Since steel in India is priced on the basis of landed cost, a weaker currency, in theory, helps mills increase steel prices in India. However, INR depreciation was largely a reflection of the c3% depreciation in the CNY, which balances the equation given that China is the largest steel exporter. Moreover, given that Chinese steel exports have increased significantly over the last few years despite the appreciating currency, we worry that a depreciating currency will boost them even further.
High levels of imports and price premium would make a steel price hike challenging Indian steel prices are down c13% over the last three months, largely mirroring the c15% drop in Chinese steel prices. All that the recent hike in import duty has managed to do is trim the premium marginally compared to landed prices. With the level of imports still high, domestic prices at a premium to landed cost, and pleas for safeguard duties still unheeded, we would be surprised to see a steel price hike in India.
