With global steel supplies improving, the uptrend in steel prices over the past one year is likely to tone down, said a CARE Ratings report. Led by China and India, global steel production grew 15 per cent year-on-year during the first five months of 2021, said CARE Ratings.
However, the rating agency does not see a sharp correction in global prices from its peak levels. As demand continues to remain robust for steel, normalcy in economic activity following relaxation of lockdown curbs has resulted in higher finished steel output across all major steel-producing economies, the CARE report said.
Riding on various stimulus packages, a sharp rebound in global demand had significantly widened the demand supply gap, resulting in an upsurge in steel prices in the last one year. From now onwards, the decline in steel prices will only be gradual largely supported by the continuing robust growth in steel demand and higher iron ore prices, said CARE Ratings.
CARE Ratings expects that the global steel prices are likely to follow the trend in iron ore prices, which means that despite an expected decline in steel prices during the second half of CY21, the spreads for the steel players may continue to hold, thereby ensuring a firm profitability of steel players.
On the domestic front, while the second wave had slowed down the demand for steel momentarily, CARE Ratings expects domestic demand is likely to bounce back post the end of the monsoon, largely driven by the infrastructure and construction sector.
Domestic steel prices are currently hovering around a marginal discount to international prices, as domestic steelmakers believe any further increase in prices may weigh down their domestic sales volumes. This discount is likely to get evaded post the moderation in international prices. Large integrated domestic steel players would continue to benefit from the export markets as they remain lucrative owing to lower export volumes from China and the cost advantage gained by Indian steel makers owing to lower domestic iron ore prices.