India Believes Steel Rally is Real

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The trigger to the recent increases in steel prices may have been a report by the World Steel Association that reasoned in its short-demand demand report that the increasing output and capacity utilization rate from February to March 2016 could be indicative of a recovery in the primary steel market’s fundamentals in both the European Union and North American Markets.

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Global investment bank Credit Suisse, in its report highlighted four “major changes” that had taken place of late, indicative of a cycle turn. It said one of them was that the inventory cycle had bottomed out globally. Given the extent of destocking and current inventory levels. Restocking could last more than the usual six-to-nine months. Any uptake in demand could further prolong restocking.

The Credit Suisse report said China’s affirmed plans to allow a higher fiscal deficit to stimulate the economy, coupled with ground-level efforts to get its infrastructure projects moving were a positive for steel demand. It claimed the “worst (is) clearly behind us  and 2016 is unlikely to be as bad as 2015.”

Credit Suisse said that “although global economic growth continues to look weak, chances of a hard landing in China or a U.S. recession appear remote.”

The bank expects no further deterioration in global GDP growth (2016 at 2.4%).

China was not alone. Inventory levels in the U.S., too, have seen a drop, leading Credit Suisse to believe that end-market demand is set to accelerate as buyers restock.

Thus, it was not surprising that prices of both raw materials, as well as finished steel, surged this year to levels last seen in 2010-11.

The China Iron & Steel Association said it expected its steel industry will swing back to profitability this year as reduced supply and increased demand have spurred a rally in domestic prices and a decline in exports.

A Bloomberg report quoted the CISA statement, saying even if the industry did not show a profit, losses would narrow to about $1.5 billion (10 billion yuan). The CISA represents the biggest steel producers in China.

In India, analysts predict that the construction of 100 smart cities and the continued emphasis by the government on the infrastructure sector would push demand for domestic steel in 2016-17.

A news report in The Hindu newspaper, quoted steel analysts and producers who said steel production, which was pegged at about 85 million metric tons (MMT) may increase by about 8 % in India. The Indian steel industry seems confident of a surge in the domestic demand, especially since the adverse impact of Chinese steel dumping was also being curtailed to some extent, after the government levied minimum import prices on steel.

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Steel India Exchange Limited Director V.V. Krishna Rao was quoted in this report as saying that domestic steel manufacturers were preparing for expansion to meet the rising demand.

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