Domestic steel contracts in India are likely to face further delays this year as the spread of Covid-19 cripples economic activity and downstream demand.
Biannual steel contract negotiations between steelmakers and auto manufacturers that typically occur in April and October are stalled, with more delays expected.
"Auto steel buyers and suppliers are unable to agree on prices as we cannot predict for how long the pandemic will last and how it will impact demand this year," said Sanjeev Raghuvanshi, executive director at Steel Strips & Wheels (SSWL).
SSWL, which manufactures steel wheels, typically sources about 45,000t of hot-rolled coil (HRC) in a quarter. This volume dropped by about 70pc during April-June. "Overall HRC demand in India is likely to fall by 40pc on year during the year ending March 2021," Raghuvanshi said.
Mills want to increase contract prices by 2,500-3,000 rupees/t ($33-40/t) for April-September 2020 contracts compared to the previous settlement level, while auto manufacturers are insisting on a rollover, market participants said.
Contracts are negotiated through bilateral discussions. Prices published by third-party information providers are referenced in talks but not widely embedded in physical contracts.
India's auto manufacturing came to a complete halt during the country's Covid-19 lockdown and subsequent restrictions, with no auto sales registered in April. India imposed the lockdown on 25 March and began lifting it in a phased manner from June onwards, only to reimpose curbs in parts of the country as Covid-19 cases spiked.
Individual car sales picked up gradually over May and June as pent-up demand was released. April-June sales fell by about 75pc from a year earlier.
India is not the only country where Covid-19 has affected domestic steel price negotiations. Vietnam-based Formosa Ha Tinh Steel in April abandoned its monthly price list for June steel shipments after an 18pc drop in spot markets, negotiating on a case by case basis instead. Market participants see this as a possible first step towards indexation.
In 2017, Cyclone Debbie stalled contract negotiations between Japanese steel mills and Australian coking coal producers, leading to the adoption of coking coal indexes such as those published by Argus as a means to settle contracts.
The Argus-assessed India domestic HRC price for 3mm thickness has fallen by Rs4,000/t since the first week of March to reach Rs34,000/t as of 17 July.
Contracts have also been delayed in other consumer segments such as re-rolling and pipe making, where annual quantities are decided at the beginning of the financial year while prices are fixed on a monthly basis.
These contracts were negotiated in June at prices lower by Rs2,000-3,000/t over March levels, after contracts were delayed in April and May because of the lockdown.
Contract prices are likely to drop further, with demand for roofing sheets expected to fall by 10-15pc from a year earlier during the June-September monsoon, said a Delhi-based re-roller who sources HRC and cold-rolled coils to produce galvanised sheets for roofing purposes
"Demand is similarly likely to fall by 20-30pc year on year during this financial year due to a liquidity crunch in the economy and Covid-19 spread," said Naresh Kumar Singhal, commercial president at pipe making firm Surya Roshni. Surya Roshni supplies pipes and tubes to steel-using sectors such as construction, infrastructure, scaffolding and oil and gas.