China, the largest consumer of steel, is facing supply curbs which bode well for steel demand and prices globally. Limited exports out of China, as Beijing targets zero emissions over time, will lower the risks of cheap steel imports into India and will likely boost capacity utilisations across domestic steel manufacturers.
For domestic steel manufacturers in India, the going has been good for a while now. Not only demand remains favourable, steel prices have also been north bound providing a supportive environment.
Chinese supply restrictions and ex-China capital starvations have finally set the stage for capacity shortfalls in steel. Analysts feel that there is still headroom for Indian steel companies to raise prices, despite a sharp rise in domestic steel rates over the past six months. Realisations for Indian firms will, therefore, continue to improve.
While markets appear to be expecting a correction, steel prices continue to move higher, point out analysts. The landed prices of steel are in the range of Rs 72,000-75,000 per tonne, higher than the domestic price of Rs 59,000 a tonne.
As better realisations accrue higher benefits, capacity utilisations should also improve in India. Fresh capacities, however, are sometime away. JSW Steel has commenced production from its new 5 million tonnes per annum (mtpa) hot strip mill facility at its Dolvi Works while Jindal Steel and Power Limited has also completed expansions.
With rising steel prices, integrated steel manufacturers such as Tata Steel Ltd will reap benefits.