The steel prices are on continous rise since July,2020

Domestic prices of steel have hit record levels, despite a slow pace of recovery in demand. The lull in regional market notwithstanding, prices of hot rolled coil (HRC), a key indicator of the price trend in flat steel, have touched an all-time high of ₹58,000 per tone

Why Steel Prices are on continous rise?

The steel prices in the domestic market have been moving northwards on the back of rising domestic demand and iron ore prices, higher international prices and subdued production and limited imports
The international prices surged to over USD 750 per tonne from the bottom of USD 397 per tonne witnessed last year.
With an increase of Rs 1,000 in iron ore prices, the minimum impact is Rs 2,000 per tonne in teelmaking.

Domestic HRC prices rose by a further ₹2,750/tonne (5%) compared to previous week as major producers calibrated their notified prices with wholesale ones

A primary producer said that the prices would be raised in tranches this month and the total increase could be Rs 6,000 a tonne. “The first tranche is already effective.
Steel prices were likely to stay firm also as China was not expected to export large volumes owing to a better balance in their domestic market, and there were no other very significant exporters in the world market.

Industries that rely on the Steel as a key Raw Material

Automobile

Steel is produced from iron ore and is perhaps the most widely used input in auto manufacturing. On average, 900 kilograms of steel is used in every car. Prices of commercial vehicles and farm equipment are seen rising 1-4% in January

Appliances

kitchen and entire household almost certainly wouldn’t be the same without steel, which accounts for 75% of the average household appliance’s weight. Cost of consumer appliances, like televisions, refrigerators, and washing machines, can go up by as much as 10%

Packaging

Steel packaging is most common in food and beverages, though you will also find it in general lines and closures such as bottle caps.

Forging Industry

30% rise in the price of steel seen from the second quarter this year will hinder the revival of the domestic forging industry. The auto segment accounts for around 60-65% of the forging industry business.

Price Hike Across Automobile Industry due to increase in steel prices

Hero MotoCorp has announced that it will increase prices of all its two-wheelers from January 1, 2021. However, the hike in prices will be restricted to a maximum of Rs 1,500, depending on the model.

Tata Motors on Monday announced increase in commercial vehicle prices from January 2021

Bajaj Auto  has already increased prices of its KTM and Husqvarna motorcycles in India

Maruti Suzuki will increase prices of its vehicles from January to offset the adverse impact of rising input costs.
Mahindra & Mahindra will hike prices of its range of tractors from next month in order to partially offset the impact of rise in input costs. It also announced that it will hike prices of its entire range of passenger and commercial vehicles

Top Picks in Steel Industry –

Tata Steel

Tata steel primarily caters to customers in automotive, construction, engineering, energy and power sectors. Tata Steel said its realizations per tonne will rise by ₹5000 this quarter. Compared to the Ebitda/tonne of about ₹12,000 in Q2, ₹17,000 realisation per tonne will be among the highest that it has reported. The top six steel producers increased their market share in crude steel production to 65% in December, against a historical average of 55% while their capacity utilization has risen to 85% against an average of 78% until then while that of secondary players fell to 65%, according to credit ratings agency ICRA.

JSW Steel

JSW Steel achieved crude steel production of 4.08 million tons (MT) in 3Q FY21, registered growth of 6% QoQ and 2% YoY. For FY21, JSW Steel maintained crude steel production guidance of 16 MT and saleable steel sales guidance of 15 MT. The company’s average capacity utilisation improved from 86% of 2Q FY21 to 91% for 3Q FY21. Company has commissioned a 1.2MT wire rod mill at Vijayanagar with trials currently underway. JSW Steel stands to benefit from increase in steel demand from the auto sector, as it looks to recover lost ground. The company seems positive as it could gain synergy benefits with the deal to acquire Bhushan Power and steel. The doubling of steelmaking capacity at Dolvi from 5 million tonnes (MT) to 10 MT is currently under way and is expected to be commissioned by Q4FY21.

Jindal Stainless

Jindal Stainless has 25% market in Stainless market. Merger of JSHL into JSL will create a mega stainless steel entity and largest stainless steel company in India, will also catapult Jindal Stainless into the club of world’s top 10 stainless steel firms. In terms of product basket, the merged entity will have a diversified end-to-end product portfolio including 120+ stainless steel grades. JSL may even enter the top 5 in the next three years as cash flow from JSHL will aid growth at the Jajpur plant. JSL will issue 195 shares for every 100 shares of JSHL. Stainless steel is used in architecture, building and construction (ABC segment), automobiles, railways, transport (ART segment), process industries, etc.

Kirloskar Ferrous

Kirl Ferrous has two segments Pig iron and castings. It meets a large part of castings demand from the buoyant tractor industry. Over 50 % of the casting volumes is from the tractor segment which has showen improved in recent months. The company earns 60% revenue from the lower margin pig iron business where the spread or the differnce between raw material and product is about to rise sharply. Prices of coking oil, a major raw material have fallen by 30% Year to date. Prices of pig iron on the other hand have increased by 25% in the said period thereby increasing per unit realiztion for the company. The company has planned a capital expenditure of nearly Rs. 450 Crore in the medium term.

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