With high steel prices making operations less viable and thus less profitable, end-use industries may defer consumption slightly, India Ratings and Research (Ind-Ra) said on Friday.
This can arrest the rate at which steel prices are increasing, it said.
While steel mills are pushing for a further increase in prices, there can be a possible government intervention since the cost of infrastructure projects are up 20 to 25 per cent over pre-Covid levels.
Besides, auto original equipment manufacturers and vendors are pushing for government intervention due to the high prices.
Ind-Ra said the domestic consumption in November was at 8.93 million tonnes, 7.8 per cent month-on-month higher but 2 per cent year-on-year lower. The increase in consumption from 2Q FY21 has led to increased absorption of inventories at steel manufacturers.
The closing stock of finished with steel producers at end-November was at 10.99 million tonnes, 3.68 per cent month-on-month and 15.98 per cent year-on-year lower. The improved domestic demand is reflected in steel prices which further increased in November.
To push domestic steel consumption, the government has taken certain initiatives. Consumption within the flat products segment has been supported by a demand from the automobile and consumer durable industry, due to the festive season, in addition to the ongoing work-from-home culture and preference for personal mobility.
On the other hand, crude steel production over January to November was 12.3 per cent year-on-year lower, due to the Covid-19 disruptions over 1Q FY21, but improved month-on-month in November to 9.25 million tonnes -- substantially higher than 3.14 million tonnes produced in April when the lockdown was in force and was on par year-on-year.
However, the crude steel output over April to October was 21.7 per cent year-on-year lower at 49.67 million tonnes due to the Covid-19 led lockdown.
Ind-Ra said the prices may remain weak in the near term. A fall in coking coal prices will benefit domestic steel producers and provide a boost to spreads.
( With inputs from ANI )
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