Metal firms say weak rupee set to be a mixed bag for biz

A weak rupee will make imports of input materials more expensive for metal firms but better export realisations may cushion the impact to an extent, say industry insiders. Also, steel imports will be less competitive and act as a buffer to weakening domestic prices, they say.

According to CRISIL Research, India imported close to 57-59 million tonnes of coking coal – a key input for steelmaking – worth ~1 trillion in the year ending March 31, 2022.

Prices of coking coal soared since February 24 with Russia’s war on Ukraine as both nations are major steel and raw material exporters. It has come off from its peak of $670 a tonne, but is still hovering around $500 a tonne. A weak rupee will make imports more expensive but some steel companies believe that the impact will be neutralised.

“A weaker rupee is positive for the steel industry as we are a net exporter of steel. Domestic prices will be helped with a weaker rupee because imports will be less competitive. Imported coal costs will go up but overall a weaker rupee is better for the industry,” said Tata Steel Managing Director and Chief Executive Officer (CEO) T V Narendran.

“While the rupee has depreciated, we at JSW Steel have a cash flow hedge in place,” said Jayant Acharya, director (commercial & marketing), JSW Steel.

Acharya said that a weaker rupee will lead to higher cost of imports and thus support domestic prices. “Exports will provide some cushion on better rupee realisation. As geopolitical tensions and supply disruptions ease, we expect a correction in raw material prices going forward.”

Jindal Steel & Power expects the higher cost of coal imports to be neutralised by export realisations. “We are exporting about 35 per cent of the total produce and we import only coking coal. The impact on us is neutral up to rupee-at-78 levels,” said JSPL Managing Director V R Sharma.

The problem for steel firms, however, is that prices in the western markets have corrected, says Hetal Gandhi, director, CRISIL Research.

“Indian mills made the best use of elevated prices in Europe and the US to book export orders over the last two months, but with prices in both the geographies correcting by over 25 per cent exports will not remain as lucrative. Hence, Indian mills won’t be able to use exports to offset the rise in coking coal prices,” said Gandhi.

In the domestic market, prices are correcting after touching a new all-time high in April.

The Steelmint data shows the average monthly trade prices of hot rolled coil — a benchmark for flat steel — dropped from ~76,000 per tonne in April to ~72,500 per tonne in May; rebar in long steel corrected from ~72,900 to ~71,000 per tonne.

Arcelormittal Nippon Steel India Chief Marketing Officer Ranjan Dhar said there was hardly any headroom for mills because costs in this quarter were very high. To the extent of currency movement, costs will get impacted.

Dhar said the bulk of sales were in the domestic market. “About 70-80 per cent of the cost is on account of imported coal. That cost will go up because of currency while domestic steel prices are not moving basis currency,” he said.

But mills are hoping that sentiments will improve with the latest developments in China. Relaxation of lockdown is expected to bring back demand.

In base metals, India is a net exporter of zinc and may stand to gain. “Our prices are linked with USD. While fall of rupee does improve earnings in INR, it increases our cost of imported coal as well as capital equipment and certain spares. However, on an overall margin point of view, it’s beneficial,” said Arun Misra, CEO of Hindustan Zinc (HZL). HZL has a 78 per cent share in India’s primary zinc industry.

As far as aluminium is concerned, India is a major exporter. Gandhi said three large domestic players export over 60 per cent of their domestic production. “Rise in currency rate is likely to lead to higher realisations (domestic as well as exports) aiding the margins for the players.”

However, S K Roongta, nonexecutive chairman, Balco, said rupee will not have a great deal of impact on the aluminium industry. “There are inputs that have to be imported. Secondly, in a normal situation, if the dollar is strong globally then prices on the London Metal Exchange (LME) get correspondingly adjusted downward.”

The secondary aluminium sector is largely dependent on imports, said Gandhi, and depreciation in rupee will lead to higher input costs, which will be marginally offset by higher domestic realisation.

In copper, Indian manufacturers are largely converters and depreciation in rupee will lead to higher treatment charge/refining charge margins – fixed at the global level between miners and copper cathode manufacturers – in rupee terms, proving beneficial for the industry, according to Gandhi.