Steel may gain little as China eases covid curbs


NEW DELHI : Easing covid-19 restrictions in China may lead to an increase in demand and prices of metals, but the uptick maybe limited, said industry experts.

As the largest consumer of commodities, a pick-up in demand in China can help lift global metals demand and prices amid recessionary concerns in developed economies such as the US and Europe. Rising demand and prices in China will also be key to prevent cheap imports to India and help improve domestic steel prices. However, analysts said that while easing of covid restrictions in China can accrue positives, benefits may be gradual. Domestic steel prices are still near import parity prices, and under pressure. Declining coal prices, however, can accrue benefits on the margins.

Encouraging Chinese trade data for November, expectations of easing covid restrictions and stimulus measures from Beijing led to a rise in copper and aluminium imports by China, said analysts. Nevertheless, this could have been aided by lower functional capacities as aluminium prices had seen significant corrections.

However, the rise in China’s steel exports is a negative indicator, as it indicates rising production amid lower demand. It also increases the threat of higher steel imports to India.

“Pick-up in steel exports (China), despite declining global prices, is a cause of concern, particularly when traditionally weak demand period for construction looms large and winter production cuts in Tangshan are not as stringent as last year,” analysts at ICICI Securities said. That said, lower aluminium exports owing to domestic production cuts is expected to maintain the market balance and support the London Metal Exchange, they added.

For Indian steel producers, steel prices in the domestic market have continued to decline. During the week ended 9 December, domestic hot-rolled coil (HRC) prices fell by 1,500 a tonne week-on-week to 54,100, the lowest since March 2021, said a Nomura Research report on 12 December. With this, the difference between domestic steel prices over import prices is falling, but domestic prices are still at a 1,700 per tonne premium to import prices from China, showed Nomura data.

This is expected to keep a lid on Indian steel prices. Till China prices and international steel prices improve significantly, domestic steel prices may not recover.

Indian steel prices being at premium to import prices is a key reason limiting the benefits of easing of export duties by the government to steel manufacturers.

Apart from weak domestic demand and de-stocking, a muted export market is also a reason for the fall in steel prices despite the withdrawal of export duties, analysts at Kotak Institutional Equities said. Steel stocks, after the rally in China reopening euphoria, offer unattractive risk-reward, they added.

Analysts said China will be easing covid-19 restrictions in small measures up to March 2023, before economic activity can pick up pace by mid 2023. The positives for steel manufacturers are expected from the fall in energy costs due to declining coal prices. Coking coal prices have corrected by 20% from the previous month to $250 a tonne primarily due to weak global demand.

Catch all the Corporate news and Updates on Live Mint.
Download The Mint News App to get Daily Market Updates & Live Business News.



Source link