What is the global sentiment right now when it comes to metals because one wonders whether demand is going to continue to be subdued given the global recessionary fears now?
We are seeing a very synchronised downturn in the international markets. From what I can see, the European Union has been the epicentre of the whole roller coaster ride that we have seen. So what happened in March is that the European prices tracked by S&P Global Insights rose 52% in just 21 days. This was on account of panic buying and inventory accumulation and since then prices have been on a continuous down slide.
So ever since March, prices have been sliding in Europe and now they have reached the pre-war prices of 820 Euros. So what has happened is that the buyers are stuffed with inventories, they are not looking to buy at this point. In fact, there was news that perhaps a company in France is looking at completely idling its blast furnace because there is absolutely no demand. So mills globally are just grappling with whether to continue producing at a loss or to cut production at this time.
It is not just in India, globally metal stocks have lost their lustre and are down 30% to 50%. Back home in India, a similar story is panning out with the action from central banks as well as central exchequers making sure that commodity inflation comes down or at least is peaked out. Where does S&P stand when it comes to the Indian metals stocks?
So we are not in the space of suggesting stocks. We are essentially a price reporting agency but what I can say is that right now what is happening is that China post-Covid used to be a kind of an outlier, surprising everyone with a diametrically opposite views of the market but right now, the complete sell off in the metal space is emanating from there. In the last 10 days HRC prices tracked by S&P Global had slipped 12% in China, their inventories are really piling up. We are seeing a very acute slowdown in the property sector.
Naturally, after two months of lockdown in major cities and maybe many other cities we do not even know of, consumer confidence is at an all-time low. Household incomes are also low, it will be very hard for the Chinese economy to prop up even though everybody was anticipating that there is going to be a lot of pent up demand after they open up from the lockdowns.
« Back to recommendation stories
But surprisingly, none of the patterns that we can understand from the last two years are replicating themselves. Right now, I feel Europe is down, China is extremely down and in an environment like that, India is a little bit decoupled but we are already seeing a 22% drop in Indian domestic prices from around April 6th to yesterday which was around Rs 61,000.
So I think it will be very hard for countries globally to really tame inflation and at the same time have a growth oriented outlook and if there is no growth, it is very unlikely that steel consumption can rise in an environment like that. But in India, a lot of market participants feel that around Rs 50,000-55,000 will be a reasonable level for steel to operate at and that would mean that a lot of demand that was destructed earlier would return now and there would be a lot of buying activity.
India definitely looks better than the rest of Asia Pacific countries including China and we can see some sort of infrastructure spending from the government coming forward and picking up on the volume side because as somebody was mentioning earlier, Indian mills cutting production is really the last resort they would like to average out their cost.
However, we are already seeing cutting of production in China because the mills in China are operating at a loss. We track their margins. For every tonne of HRC they produce, they are making a loss of $77. Now they are deciding whether to reduce production. A lot of raw material prices including coking coal, iron ore have come down and so to cut production or not is a difficult call for any steel mill to take.