March 24, 2022 (MLN): The local rebar prices are likely to observe another hike as the scrap prices in the international market have been increased around 28% since the beginning of March 2022 while the same has climbed up by 45% since March 2021.
This sharp spike in scrap prices is mainly owing to the supply chain disruptions on the rebound in economic activity after Covid-19, and geopolitical tension between Russia-Ukraine have messed up with the price stability in the commodity market.
Being the major raw material, steel scrap holds around 60% of the cost of goods manufactured used in long steel production. Despite swiftly rising raw material prices local long steel manufacturers reflect strong pricing power so far by a cumulative of 55% price increase announcement in the last 12 months to maintain margins, a report by JS Global noted.
Every $50 per ton increase in scrap requires an increase of Rs12,000 per ton in steel rebar price, it added.
The report anticipated ample room for growth in the steel sector from the considerably lower per capita consumption of steel in the country versus the rest of the world. Potential fiscal stimulus and mega infrastructure projects and dam projects in the pipeline would be key upsides for the graded long steel sector going forward.
Nonetheless, it is expected that fiscal constraint to continue exerting pressure, whereas conditionality imposed by the IMF for fiscal reforms might try to offset the positives. The recent local political situation and lack of clarity regarding the sustainability of economic policies would also have an impact on the demand outlook in the short run.
While some increment in the local rebar prices in response to higher scrap prices can be expected in the coming days, we believe the cost pass from hereon may not be as smooth and future profitability may be impacted, the report said.
Meanwhile, the world’s top three steel exporters i.e., China, Japan and Russia have been facing pressure on steel prices due to the supply chain disruptions for a couple of months. This was followed by the Russia-Ukraine situation, which exacerbated the situation as both countries are major global steel exporters, it added.
While sanctions by European Union on Russian Steel manufacturers have affected their production; steel production has been halted by Ukraine as a result of serious security concerns, the report highlighted.
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