India: Rebar prices at all-time high premium to HRCs in Feb'23

The HRC-rebar (blast furnace route) spread reversed to a record INR - 3,400/tonne (t) in February 2023, reveals SteelMint's data. Hot rolled coil (HRC) prices traditionally are sold at a premium to rebar. The spread started reversing from December, last year and February saw rebars averaging INR 63,000/t against HRC's INR 59,600/t. Incidentally, this rebar price level represents 35-40% of the total rebar market in India with the induction furnace route making up the balance 60-65%.

Factors keeping spread reversed

1. High year-end project demand: Demand from the infrastructure construction segment was quite high in January-February since projects have fiscal-year-end deadlines to honour. End-buyers in infrastructure prefer to buy BF-route longs because of the quality factor although secondary sector material is also BIS-certified.

2. Higher power tariffs hit IF-route rebar: The secondary players who contribute 60-65% of India's rebar market are still struggling with the issue of higher power tariffs although other raw materials were mostly stable m-o-m.

Robust power demand has led to aggressive bidding on power exchanges where bids for purchases exceeded 1.5 times that of sell bids for February. At the Indian Energy Exchange (IEX), average spot electricity prices jumped 49% y-o-y to INR 6.59/unit over 1-27 February, 2023 as against INR 4.42/unit in 1-27 February 2022. Prices also rose 3% m-o-m from INR 6.42/unit seen in 1-27 January 2023.

These factors kept the cost of production high for secondary mills which were passed on to the finished product of rebar.

This resulted in a scenario where the cost of producing hot metal for HRCs was not as high as for IF-route rebar.

3. Export volumes fail to meet expectations: HRCs are still under pressure despite the lifting of the export tax. Exports have not picked up to expected levels even though European buyers have returned to the market. Mills are catering to EU but traditional buyers like Vietnam are preferring competitively priced material from China. This is driving mills to divert part of the material that ideally should have been exported to the domestic market - since they are currently getting a comparatively higher price realization in the latter. Exports are still not touching pre-export duty levels of over 1 million tonnes per month. Current volumes are hovering at around 0.75 mnt. Had exports been over 1 mnt per month, mills would have had the leeway to increase domestic prices. As it is flats comprised over 70% of India's steel exports last calendar. Within flats, share of HRCs was almost 45%.

4. Import worries persist: It seems import worries are still persisting. Around 100,000 tonnes of HRC cargoes, which had been booked in January from Vietnam, were in the process of arriving at Indian ports since February. These were booked at highly competitive $580-600/t levels CFR. In rupee parity, these work out to be around INR 53,000/t CFR. Domestic prices, as already mentioned, averaged INR 59,600/t ($726/t). Naturally, mills are still jittery about imports and see this as another reason to keep domestic prices range-bound in February.

Outlook

Since the project segment has gone somewhat cold, longs prices may also cool down in March. Turkey's billets demand may benefit India. However, domestic rebar offers, in dollar terms at $768/t, are still higher than current realisations in global markets which are navigating $670-680/t levels FOB. In billets, Black Sea FOB offers are at $580/t, and Manila, at $624/t FOB.

In any case, Indian mills have not yet seen any billet enquiries from Turkey translating into deals.