India’s steel prices are skyrocketing. They have increased by more than 55% over the last 6 months. Some major projects have been impacted by the hike in steel prices due to additional costs.
Transport Minister Nitin Gadkari has written to the Prime Minister’s Office(PMO) to check on the rising steel prices which are making projects ‘unviable’. India’s steel reserves were full during the lockdown, sufficient to meet India’s demand once everything opened up, yet the prices continue to surge. Is there a steel cartel? is this a failure on the part of the government? Or is this a trade war unleashed by other countries? Read on to know more.
Why Are Steel Prices Surging?
India Emptied Its Iron and Steel Reserves
Rewind to the beginning of the COVID-19 lockdown, the world had come to standstill, demand had slumped, Indian steel stores were full and at rock bottom prices. Steelmakers had to somehow make a living and therefore decided to export all their steel. They exported most of their iron-ore and steel to two countries, China and Vietnam. The Iron and Steel exported to China amounted to Rs 13,000 crores between April-August alone. All of this, amidst border tensions between India and China.
Blast furnaces that are used to make steel can’t be turned off unless you are getting rid of them for good. It will cost a lot to restart the blast furnace. So to manage costs China continued churning steel even when there was no demand. Once industries opened up, the Indian government announced new projects to boost growth and employment, steel demand went up but supplies weren’t enough, causing a rise in steel prices.
India Isn’t Able To Import Steel
To protect domestic steelmakers, India had imposed heavy anti-dumping duties on ‘cheap steel’ coming from China, Vietnam, South Korea, the European Union, Taiwan, and other countries till January 2021. In order to reduce the prices of steel, traders could have imported steel from these countries to bring down prices, this isn’t viable as of now.
What can be the Impact of Rising Steel Prices?
The automobile sector as a whole will be impacted because of the surging steel prices. In fact, Maruti Suzuki and some other automobile manufacturers are going to increase their prices from January 2021. Real estate prices and urban infrastructure projects will be impacted long term since the cost of steel, as well as cement, continue to rise. Some real estate companies are alleging cartelization of cement and steel by producers. Export of steel may take a hit.
When Will Steel Prices Normalise?
Bringing down the price of Steel involves basic economics. India needs to ramp up supply in the market. It can either increase the production of domestic steel or allow the import of steel from other countries. The latter will surely impact the domestic steel players. India has imposed anti-dumping duties on imported steel till January 31, 2021. Before this date importing steel will be expensive. Considering price and quantity, the only two countries India can import cheap and affordable steel from are Japan and China.
Is China Hoarding Global Steel?
China was once known for dumping steel products all across the world. However, things have changed recently. During June, it was for the first time in 11 years that China turned a net importer of steel. Even when steel plants were operating at 90% capacity in July, China continued importing steel. One of the reasons stated by economists is that China had deployed a huge fiscal and monetary stimulus package to increase demand and promote development. Many infrastructure projects have been summoned at the same time which is giving steel demand a push in China.
Global steel prices refuse to tank, China being the largest producer of steel, has an edge in supplying steel to the world. China produces close to ~51% of the world’s steel. In a world, which is still recovering from COVID-19 at the same time trying to boost production, China is the factor for deciding whether the steel prices will go up or down. China has been in the news earlier where it has allegedly hoarded Copper and even Nickel. Could this be a move by China to dominate the metal sector?
What can be the Impact of Rising Steel Prices?
The automobile sector as a whole will be impacted because of the surging steel prices. In fact, Maruti Suzuki and some other automobile manufacturers are going to increase their prices from January 2021. Real estate prices and urban infrastructure projects will be impacted long term since the cost of steel, as well as cement, continue to rise. Some real estate companies are alleging cartelisation of cement and steel by producers.