PV sales may be hit by regulatory norms despite lower domestic HRC prices: Nomura

The steel sector has outperformed the Nifty over the past week by 0.9 percent but underperformed the Nifty by 5.8 percent over the past the one month.

India's hot-rolled coil (HRC) prices were at a discount to import prices from China at around Rs 3,800 per tonne. Global HRC export prices from key exporters including China, South Korea and Japan remained between $705 and $735 per tonne. India’s HRC export prices were flat week-on-week at $708, according Japanese research and broking firm Nomura.

Some recovery in property sales and construction sector, but demand for construction material still weak

According to CRIC (China Real Estate Information Corporation), the top 100 developers' property sales decline rate moderated to 12 percent YoY against 30 percent decline in December 2022-January 2023 reflecting a recovery in M2 2023, Nomura said in its report.

The average spreads for February 2023 were down by 4.4 percent month-on-month (MoM) to their lowest levels since March 2022 as coking coal prices remained elevated by 15.2 percent MoM. Global iron ore prices increased 3.2 percent MoM but the price of iron ore in India remained marginally stable MoM with NMDC keeping their prices unchanged.

"The strong growth was due to the weaker base from 2022 and the sales growth is still negative against 2021-2019 levels. The business resumption rate in the construction sector was at 86.1 percent YoY, but the demand for construction material still remained weak. Weekly steel rebar output declined 4.9 percent YoY," Nomura said.

China crude steel production rose 4.5 percent MoM, but was down 9.6 percent YoY in December 2022. For 2022, overall steel production was down 2.1 percent YoY against CY21, and down by 4.4 percent against CY20. On the other hand, China steel demand in January 2023 came in at 74.8 million tonne, up 2.2 percent MoM but was down 4.5 percent YoY. Demand was lower than in the corresponding months of 2020-22. China steel exports were down 3.4 percent MoM but rose by 7.4 percent YoY in December 2022, the research firm added.

"Exports were higher than that in the corresponding months of 2019-21. In 2022, steel demand was lower by 2.8 percent YoY while steel exports witnessed an uptick of 0.8 percent YoY," Nomura added.

On the domestic front, India's passenger vehicle (PV) retail sales were up 10 percent on-year in February 2023. Wholesale volumes were up 11 percent YoY. On the 2-wheeler front, retail sales were up around 14 percent YoY in February 2023. Nomura believes that demand may get impacted largely for small cars as regulatory requirements for real driving emission (RDE) and six airbags will increase the overall cost for passenger vehicles and projects industry growth of 6 percent YoY in FY24F, the Japanese research firm said.

According to market intelligence and commodity price reporting firm Steelmint, in the week ended March 3, Indian HRC prices rose Rs 1,400 per tonne week-on-week to Rs 60,700. HRC prices are still elevated against their pre-pandemic levels. HRC export prices remained stable week on week at $708 per tonne. However, with the rise in global HRC prices, domestic HRC prices are at a discount to import prices from China, and a
marginal discount to imported HRC prices from Japan and South Korea, the report from Nomura noted.

According to Nomura, the steel sector has outperformed the Nifty over the past week by 0.9 percent but underperformed the Nifty by 5.8 percent over the past the one month.

With the market on a strong footing in the morning session on March 6, the Nifty Metal index added over 2 percent while Nifty is up 1 percent.