Mumbai (Maharashtra) [India], July 4 (ANI): Steel prices could fall further in coming weeks as domestic production will gradually increase with the easing of lockdown restrictions along with no corresponding increase in demand, according to India Ratings and Research (Ind-Ra).

As a result, domestic gross spreads per tonne -- that is realisation per tonne of steel minus raw material cost) -- for both hot rolled coil (HRC) and rebar are expected to fall further in the second quarter (July to September) of current financial year 2020-21 with a further fall in prices due to oversupply.

By mid-June 2020, rebar spreads corrected more than HRC spreads due to a sharper fall in demand than available supply. This was because of the presence of several small and mid-sized players and fragmented nature of the industry within the long products segment, leading to intense competition.

However, said Ind-Ra in its latest credit news digest, rebar spreads are likely to be less impacted over the near term up to end-FY21 compared to HRC due to a likely better demand pick-up, leading to a price increase backed by the expected implementation of government spending on infrastructure.

Both HRC and rebar prices were down 3 per cent and 4 per cent month-on-month respectively in mid-June. In May, steel prices temporarily rose although higher inventories were available with steel players.

This was due to logistical constraints and man-power availability issues, resulting in limited supply to end-use industries which gradually re-opened post relaxations in the lockdown, said the report.

Australian coking coal prices (CNF India, Australia premium HCC) in mid-June were 17 per cent lower when compared to December 2019's (pre-lockdown in China). The fall in prices can be directly attributed to a fall in global demand as well as Chinese import restrictions and port clearance policies.

China imports of coking coal in May were down 19.1 per cent year-on-year and down 23.8 per cent month-on-month. With many blast furnaces were closed in China, the country increased imports of billets and slabs, which is more cost effective than manufacturing it, thus further contributing towards the lower coking coal demand.

However, said Ind-Ra, a gradual increase in China's furnace production and Chinese demand -- given the inventory levels are reducing at a quick pace -- may increase Australian coking coal demand in China, subject to import restrictions, thereby supporting coking coal prices.

Domestic iron ore prices in mid-June were 31 per cent lower than mid-March prices, prior to the lockdown in India. The domestic prices have sharply corrected due to the limited demand with most steel plants operating at lower capacity utilisation levels and high inventory with some small-mid-sized plants in eastern India dependent on Odisha miners.

Besides, most players stocked up on an iron ore inventory of four to six months by end-March due to the anticipated risk of limited iron ore availability because of uncertainty over the timely completion of iron ore auctions.

The increase in Chinese imports benefited domestic steel players, especially the large steel players who were operational at lower utilisation levels during the lockdown and who compensated for the dull domestic demand by increasing steel exports (majorly to China) albeit at lower margins.

However, said Ind-Ra, timely policy support from the government will help bolster demand for the domestic steel sector.