scorecardresearchDomestic steel mills are expected to cut production as demand falls: Report

Domestic steel mills are expected to cut production as demand falls: Report

Updated: 29 Jun 2022, 10:26 AM IST
TL;DR.
More than a 22% decline in steel prices since its peak in April this year has made buyers wary of holding inventory in anticipation of further price corrections. Consumption of steel has also come down as the seasonally slow period of the monsoon arrives.
On May 22, the government imposed a 15% export duty on a range of finished steel products. 

On May 22, the government imposed a 15% export duty on a range of finished steel products. 

At the beginning of the Russian-Ukraine Crisis, Shares of Indian steel companies were on fire, delivering 5–10% returns in a matter of weeks. In fact, the Nifty Metal index traded in the green when all other indices were in negative. 

Experts also believe that Indian steel companies will benefit from the crisis as the war worsened the steel supply and they also forecast that the export-oriented companies may benefit as Indian companies operate at the lower end of the global cost curve due to lower labour and iron ore costs compared to other countries.

But now, all seems to have faded away with the announcement by the government of an export duty of 15% on the alloy from May 22 in its efforts to arrest inflation. There was no export duty on steel earlier.

Steelmakers are expected to cut production next month by advancing annual maintenance shutdowns to regulate inventory, amid a fall in domestic demand and because of the new export duty that has made international sales unviable, people with knowledge of the matter told Economic Times

Finished steel inventory has piled up at steel mills, they said. A more than 22% decline in steel prices since its peak in April this year has made buyers wary of holding inventory in anticipation of further price corrections. Traders and user industries of steel have dipped into their stocks, and once those are depleted, they will buy only as much as they need immediately.

Consumption of steel has also come down as the seasonally slow period of the monsoon arrives.

All these factors have resulted in the piling of unsold inventory with steel mills, forcing them to advance annual maintenance shutdowns or even pare production by taking multiple smaller production halts of 2-3 days, the people said.

Usually, steel companies take 15–25 days of maintenance shutdown in September or October, when domestic demand is low. However, ET has learnt that many steelmakers will take these shutdowns in the coming months. Several secondary steelmakers have already taken production cuts.

Steelmakers, in general, are reducing production by 10–15%, the unnamed executive cited earlier said.

The average production of steel in India is about 10 million tonnes a month. Domestic consumption fell to 6 million tonnes last month, this executive said. In the absence of an opportunity to export, the differential was getting accumulated at steel mills.

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First Published: 29 Jun 2022, 10:26 AM IST