Indian stainless steelmakers need not fret over rising nickel prices, thanks to existing low-cost inventory of the key raw material which is enough to cater to consumption for three to four months and expectation of higher demand for the finished products by dealers.
The price of nickel—the best-performing base metal on the London Metal Exchange so far this year—rebounded from $10,755 a tonne in November to $12,307 a tonne in the ongoing quarter, according to Bloomberg data. The prices rose on expectation of lack of supply for the fourth straight year, lower inventory levels globally and recovering demand from stainless steel mills in China.
As the nickel prices go up, dealers stock stainless steel anticipating higher demand for the finished product, according to Ashok Gupta, former chief financial officer of Jindal Stainless Ltd. “Every $1,000 a tonne increase in nickel prices impacts cost of production of stainless steel by $85 a tonne,” he said.
The fall in nickel prices impacted Jindal Stainless' margin in the last two quarters as they bought the raw material at higher prices, according to its investor presentation.
Jindal Stainless' average nickel inventory of about 3,500 tonnes and the continuous fall in prices of the raw material led to a slowdown in demand for finished products by the dealers, impacting profitability, according to Anupam Gupta, research analyst at IIFL Institutional Equities. That's, however, expected to reverse in the quarter ending March as nickel prices stabilise, he said in a report.
Also, the government's imposition of anti-dumping and anti-circumvention duty on stainless steel imports from Indonesia will help the domestic producers.
“While imports from the Association of Southeast Asian Nations remain a concern, imposition of duties could provide a level-playing field for domestic producers,” Antique Stock Broking said in a report.
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