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Steel prices in India had begun to strengthen. The report noted that long and flat prices had increased by 10% and 4%, respectively, over the course of the past two months. The report attributed this price surge to robust domestic demand and the recent surge in raw material prices. The report further explained that the domestic market had tightened due to a weaker monsoon and seasonal restocking, which allowed for price increases despite sluggish regional prices. In the past month, seaborne iron ore and coking coal prices had surged due to a combination of increased demand and supply issues.

The report anticipated that steel margins would strengthen in the short term, but it cautioned that cost inflation would necessitate further price hikes to maintain those margins. During the second quarter of FY24, domestic hot-rolled coil (HRC) prices had risen by 4%, while rebar prices had gone up by 10%.

It was observed that domestic prices were currently trading at an 8-10%premium to import parity levels, as Chinese export prices had remained relatively stable during this period.

Domestic steel demand had grown by 17%in August 2023 and by 13%in the first five months of FY24, surpassing Kotak's estimate of a 9% year-on-year growth in FY2024E. In the past month, seaborne iron ore and coking coal prices had increased by 5% and 24%respectively.

Iron ore prices had risen due to several factors, including the absence of steel production cuts in China, a three-year low in iron ore inventory at Chinese ports, and positive sentiment following stimulus measures related to the Chinese property market. Meanwhile, coking coal had witnessed increased demand in key markets, particularly India, coinciding with reduced supply from Australia, Canada, and Russia, resulting in a significant tightening of the market balance.