Domestic steel prices defied predictions and ascended through the December quarter as three tailwinds converged: high global prices, tight domestic supply on account of iron ore shortage, and healthy demand growth.

Taking cue, steel makers have raised the prices of hot-rolled coils (HRC; average monthly price) multiple times since August, rising by as much as Rs 13,800 per to Rs 51,050 per tonne in December (37% on-year growth).

Importantly, despite this material increase, domestic prices are still 6-8% below global landed prices. Put another way, there is room to raise domestic prices further given they move in sync with the world trend.

China HRC f.o.b. (free on board) prices, after plunging to $409 per tonne in April from $499 per tonne in January 2020, rebounded to $647 per tonne between April and December 2020.

Global prices also touched an 8-year high in December on healthy demand and cost push from soaring iron-ore prices. Chinese crude steel production increased 8% in the period, while exports and inventories remained low indicating robust demand growth there.

We expect steel prices to remain high in the January-March 2021 quarter with a sequential price hike of Rs 7,000-8,500 per tonne. Consequently, flat steel prices are seen 14-15% higher on-year this fiscal.