Election results lift Indian ferrous market

Steel sales and imported coking coal purchases by Indian steel mills could see an increase in the short term, with early federal election results indicating the return of the incumbent BJP government.

Downstream steel demand and coking coal imports have been subdued over the past few weeks on the back of political uncertainty. India's seven-phase general elections started on 11 April and will conclude today as votes will be fully counted by the end of day. The BJP government, headed by prime minister Narendra Modi, is on schedule to be sworn in for a second term over the next few days. The BJP was leading in 300 seats, according to the Election Commission of India as of 3.10pm India Standard Time (09:40 GMT), with 272 required for a majority in the 543-seat lower house of parliament.

"Stockists and distributors began stocking steel products earlier this week with the expectations of an increase in prices after the election results were announced. They were hoping for a second term for the current government as continuity in policies will improve sentiment and lift steel prices," said a Hyderabad-based steel distributor. Several exit polls had predicted a victory for the incumbent government on 19 May.

The current government had stepped up spending on infrastructure projects, such as railways, highways and bridges, power and building homes in urban and rural areas over the past five years, which has boosted steel demand. It had also made it mandatory for state-funded projects to use India-made steel and imposed stringent quality regulations to discourage steel imports. Steel demand is expected to grow by over 7pc from a year earlier in the current 2019-20 fiscal year that started 1 April.

"Political stability in Delhi will definitely improve market sentiment.However, actual steel demand may only increase after six to seven months, once the new government rolls out its economic policies," said the manager of a Delhi-based automotive company. "A second term will enable the current government to implement current budget allocations and even increase the implementation pace of infrastructure projects in the country."

"Steel prices at least won't get any worse as a result of this election. A government change could have shaken markets," said a Kolkata-based coking coal trader.

Indian steel companies import more than two-thirds of their coking coal requirements from countries such as Australia and the US.

"An opposition win could have shaken confidence in the Indian rupee and caused it to depreciate against the US dollar, making imports more expensive for Indian coking coal consumers, said a Singapore-based trader.

Steel traders are expecting positive sentiment generated by the elections to accelerate sales to downstream sectors, eroding their stocks and lifting prices. But most expect any demand surge from consumers such as the auto, durable and real estate construction sectors to remain sluggish over the next couple of quarters as economic growth is forecast to remain weak. A major drag on India's economy is the worsening state of the financial sector because of the heavy burden of non-performing loans, which have squeezed banks' ability to make fresh loans to industries.

Indian steel mills may resume restocking coking coal from next week ahead of the June-September monsoon season, but recent enquiries have focused on second-tier and semi-hard coking coal segments.

"Steel mills are looking for value buys with a view that the market is softening. Monsoon season is just around the corner and that is enough reason for mills to cover their requirements now," a Mumbai-based trader said.

But some east coast Indian ports such as Dhamra are still struggling to recover from the impact of Cyclone Fani earlier this month. Some importers have had to delay restocking while they reroute vessels to other ports.

"The ports and railways created bottlenecks that we are still dealing with, which is why we will look for take a July cargo instead of June," another east Indian steel producer said.