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    Steel MarketWatch (July 2022)

    Over the last two years, the steel market has been very volatile, experiencing fluctuations in price, volume, and applied taxes. The first quarter of 2022 saw a steep jump in steel prices, as high as Rs 75,000 per tonne, an increase of over 95% from pre-COVID levels in March 2020. In Q2 ’22, the government decided to add a 15% tax on steel exports, leading to a sharp decline in the price of steel to around Rs 61,000 per tonne in mid-June 2022.

    Here’s a quick look at the latest developments shaping the market in the last two weeks -

    1. ICRA updates its outlook for the steel industry from positive to stable

    The Investment Information and Credit Rating Agency (ICRA) announced that it has changed the outlook for domestic steel from positive to stable, primarily due to rising input costs amid low steel prices.

    Even if the domestic demand growth prediction for FY23 is kept unchanged at 7-8 percent, the industry's overall operating profits for the fiscal are revised downward by approximately 30% due to margin pressure from decreasing steel prices and rising input costs. As a result, the rating agency modified the sector's outlook from favorable to stable.

    This means that after two consecutive years of record-high earnings, steelmakers are likely to see their profits shrink in the next twelve months. This is expected to happen as a result of trade barriers from export duties on finished steel, unprecedented pressures on coal and energy prices, and muted domestic demand growth, as per a report by (ICRA).

    In addition, with high inflation and front-loading of policy rate increases, the operational environment is expected to be unfavorable for growth in the next few months. The industry could thus be headed for a long-term slowdown.

    2. Government lowers the input costs for steel

    The Indian government lowered the steel industry's input costs in July, which is a win for the industry as a whole. However, the government imposed a 15% levy on the export of the majority of the steel categories to reduce costs on the domestic market by ensuring ample supply and thereby controlling inflation.

    To discourage exports and boost supply in the domestic market, a levy of 45–50% was imposed on various iron ore grades, a crucial raw material. This, on the other hand, led to the elimination of a 2.5–5% levy on importing certain types of coal.

    According to data from Steel Mint, steel prices have been falling since April after reaching an all-time high of Rs 78,800 per tonne for benchmark hot-rolled coil (HRC) steel. As of June 15, the price of HRC steel stood at Rs 61,400 per tonne.

    The decrease in steel prices was caused by several factors, including declining local demand before the monsoon, falling input costs, and fewer exports since the revision of export duty.

    3. Impact on steelmakers

    While the impact of these developments is being felt across the industry, major steel businesses are concerned that they must either pay the export levies and lose money on exports or lose global clients to other enterprises worldwide.

    According to experts, the duty revision has had different effects on larger and smaller steelmakers. Since the export of steel products is primarily driven by larger steelmakers, the export duty is likely to have no impact on smaller steelmakers, while the steel-producing majors will see lower profitability.

    Because of the decline in steel prices and imposed tax on exports, the steel market will balance itself to the right course to again favor the steelmakers. So, experts are bullish on the local prospects of the steel industry in 2022.

    Will steel prices go up in July again?

    In April 2021, the price of steel stood at Rs. 55,000 per tonne, soaring to a high of Rs. 76,000 per tonne in April 2022, a steep jump of over 95% from pre-COVID levels recorded in March 2020. However, weak seasonality, market corrections owing to a drop in construction demand during the monsoons, and corrective measures undertaken by the government resulted in the fall of steel price close to Rs 61,000 per tonne in mid-June 2022.

    According to industry experts, steel prices had already bottomed out by early July. Due to a combination of rising input costs (iron ore prices) and a lift in global demand, steel prices are thus expected to rise after the monsoons as construction and infrastructure development pick up steam.

    JSW Steel earmarks Rs 10,000 crore for carbon emission reduction initiatives

    In accordance with India's Nationally Determined Contribution (NDC), JSW has committed to lowering its CO2 emissions intensity by 42% by 2030 from the base year of 2005. JSW also became the first steel company in the world to issue a US dollar-denominated Sustainability Linked Bond (SLB).JSW's ongoing expansions are focused on producing steel using a more significant amount of renewable energy, digitization to achieve operational efficiency, and technology to reduce related CO2 emissions.

    "We have earmarked Rs 10,000 crore for investments to reduce our carbon emissions through various initiatives, such as increasing the use of renewable energy to replace thermal power, reducing fuel rate through improved raw material quality via beneficiation, and deployment of best technologies," - Sajjan Jindal (chairman and MD of JSW group)

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