November 8, 2022

India’s steel demand could grow at a "high single-digit" rate over the next 12 to 15 months, according to comments from Moody's Investors Service yesterday. According to their comments, this expected demand growth could come from infrastructure investments before India’s 2024 national elections. Moreover, they believe that Indian demand is a “bright spot” compared to other regions. AEGIS notes that India’s steel is already on the upswing. Compared to 2021, the country’s finished steel consumption grew by 11.4% between April and October to 65.5 million mt, according to government data. Imports of finished steel also grew during that period, as they imported 3.2 million mt, up 14.5% from the same period in 2021. (Source: Reuters)

Even though India normally imports little steel from the US, higher Indian demand could be bullish to CME HRC prices, if their demand for US finished-steel products increases over the next year. Moreover, other major steel importers could be forced to look elsewhere for steel, especially if their cargoes are diverted to India. This could be a good time for steel end-users to hedge future needs into 2023 by buying HRC swaps. Using swaps converts a variable cost into a fixed cost, thereby ‘locking in’ a price for the hedged steel. Since HRC swaps are thinly traded, we suggest using limit orders to establish a specific steel price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (11/8/2022)

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