Global steel prices (free-on-board, China) are set to stabilise in calendar 2023 on-year, after falling over 40% to $570-590 per tonne in December 2022 from the early-April peaks of $1,000 per tonne on tepid steel demand.

Following the global trend, domestic steel prices are expected to soften only a minimal 2-4% on-year (for flat steel) in fiscal 2024, after seeing a decline of over 30% last December from the historical highs of April.

Recall, flat steel prices had climbed ~25% in just two months at the onset of the conflict between Russia and Ukraine, but cooled off due to a drop in raw material prices, imposition of export duty by the Government of India, and rising stock levels.

However, prices are once again set to turn the corner as steel producers face rising input costs.

A large part of this is because the Indian steel industry imports ~90% of its coking coal requirement, majorly from Australia. While coking coal prices were on a declining trend for majority of this fiscal, short-term volatility was observed in anticipation of supply chain disruptions. Easing of China’s unofficial ban on Australian-origin coal import will not only add to further volatility but also alter the supply chain, yet again. While there are reports that three power plants and a steel player in China have already been given the go-ahead to purchase Australian coal, more entities are likely to be allowed.

That said, since China’s unofficial ban, Australian miners and traders have redirected supplies to other Asian and South American destinations. China, on its part, has come to rely on Russian and Mongolian coking coal supplies. These reasons, along with flattish demand growth forecast in China despite its government’s real estate push, will prevent a major rally in Australian coking coal prices in 2023.

Says Hetal Gandhi, Director-Research, CRISIL Market Intelligence and Analytics, “Anticipation of China-Australia coal trade resumption had already driven coking coal prices beyond $300 per tonne by late December. But with the Chinese new year nearing, uptick in trade volumes between Australia and China is expected only beyond March 2023. However, any major imports by China is anyways unlikely, given Chinese steel mills have already adjusted to Russian and Mongolian coal over the past two years, which comes at a healthy discount to landed Australian coal. With coal production in Australia unlikely to see any sharp increases due to environmental concerns, coking coal prices are set to stay elevated in 2023 around the $250-300 mark.”

Along with coking coal, domestic iron ore prices have also steadily risen since the withdrawal of export duty effective November 2022. Since then, the National Mineral Development Corporation has raised iron ore fines prices by over 30%. Prices are only set to move up further, with expected healthy domestic demand in a pre-election year and improving global iron ore prices which also rose 20% over the past two months.

Rising input costs has led integrated and secondary players to announce price hikes across segments over the last two weeks, by Rs 2,000-2,500 per tonne.

Says Koustav Mazumdar, Associate Director-Research, CRISIL Market Intelligence and Analytics, “Projected demand growth at a compound annual growth rate (CAGR) of 8-9% between fiscals 2023 and 2024, along with elevated coking coal prices, will keep flat steel prices propped up at ~Rs 60,000 per tonne in fiscal 2024. Though this represents a marginal dip of 2-4% over fiscal 2023, on average, it is still considerably higher than the pre-Covid level of ~Rs 40,000 per tonne. Long steel prices for secondary players are also expected to see a small decline, driven by falling thermal coal prices, which, in turn, will drive primary TMT prices lower by an expected 1-3% next fiscal.”

The rise in domestic prices in the coming months, however, will not be steep, as the threat of imports will continue to loom over the domestic market. In the October-December quarter, domestic prices were trading at a significant premium vis-à-vis imports, leading to India becoming a net importer of finished steel. But even as global prices corrected by ~10% from mid-December lows till date, domestic prices saw only a minor uptick of 4-5%. Landed prices will thus continue to drive domestic prices as players will remain cautious so as to not lose volumes.