Vale’s Iron Ore Output Cut To Cushion Indian Steel Prices

The declaration of force majeure following the collapse of a mining-waste dam owned by Brazil's Vale SA—one of the biggest producers of iron ore in the world—is expected to cushion Indian steel prices.

Following the dam breach, Vale announced it would decommission all its upstream units which could impact the production of 40 million tonnes of iron ore. That pushed up prices of the steelmaking raw material globally to its highest since 2014, and is expected to boost steel prices.

Edelweiss Research said that would limit the downside to steel prices from the current levels in India. More so because current China prices—that serve as a benchmark—are at the lowest level (if 2015 prices are excluded), Amit Dixit, research analyst at Edelweiss Research said, indicating that they are expected to rise. Anti-dumping duty also offers protection to Indian steel prices, he said.

Indian steel prices usually trade at a discount to Chinese prices on a landed cost basis—imported price inclusive of all duties—to maintain the revenue share of the domestic market. While higher prices may not lead to a sharp spurt in Indian steel prices, but it would prevent them from sliding further. Already, the discount between Indian and Chinese prices is at an eight-month-low.

China Prices Up

Shanghai Steel prices rose as much as 12 percent in January after Vale announcing decommissioning. Prices were also driven by higher costs and on expectations that demand will return after the Chinese New Year when factories resume full operations.

Indian steel prices that fell in the last four months have shown recovery in February.

Seshagiri Rao, joint managing director at JSW Steel Ltd., told BloombergQuint after the third-quarter earnings of India's larger steelmaker that steel prices in February were up by as much as $10 a tonne in line with the global trend. He expects the Shanghai Steel prices to hover around the $520 a tonne level in 2019.

JPMorgan was also bullish. “Domestic steel prices have bottomed out,” it said in a note. “We see the potential for up to an 8 percent price increase, and most of the price cuts seen in December and January should be reversed.”