India steel index falls w-o-w but longs stable; what factors to watch out for?

The India Steel Composite Index continued to drop for the eighth week in a row. However, unlike last week, the fall was slightly less hard, cushioned somewhat by the price cuts effected by mills early last week. Thus, the index showed a 0.7% w-o-w dip to 146 points (147 points) for the week ending 9 June, 2023.

Interestingly, it was actually flats which impacted the mother index since the India Long Steel Composite index remained flat w-o-w at 144.10 points. The India Flat Steel Composite Index lost 1.34% w-o-w to touch 148.10 points (150.10 points), a steeper w-o-w decline compared to the 1.20% drop in the preceding week.

Factors influencing the steel index

Price cuts encourage longs sales: Tier-1 mills axed list prices of rebar by up to INR 3,000/t (36/t). The price slash led to some immediate traction in the longs market, with transaction volumes rising last week. Some swift pre-monsoon bookings were closed. However, flats were not so lucky with other factors working against them.

Electric furnace mills' offers up: Prices offered to the projects segment fell by INR 500/t to INR 53,500/t FoR Mumbai. However, offers in the EAF-IF segment firmed up amid the hike in coal prices. IF-grade rebar offers went up from INR 49,600/t on 5 June to INR 50,300/t on 9 June, ex-Raipur, as per SteelMint data.

Hike in CIL prices: Longs also gained some momentum possibly because of the recent hike in Coal India (CIL) prices. It may be recalled CIL hiked prices for the first time since January 2018 w.e.f 31 May, 2023. Prices of higher grades (G2-G10), which comprise 30% of its total output, were increased by 8%. Since the induction furnace mills are heavily dependent on CIL for domestic sourcing of coals, their cost of production has increased, warranting the support to longs prices.

Flats

Mills slash offers for June deliveries: Flats continued to remain under pressure because of the twin whammy of higher supply and lower demand. Thus, tier-1 mills had no choice but to slash prices for early June sales to induce some demand pull in the market. In flats, the larger mills cut list prices of hot rolled coils (HRCs) by INR 2,000/tonne (t) ($24/t) and in cold rolled coils (CRCs) by 3,750/t ($45/t).

The reductions were made on the May prices.

Domestic trade-level prices also dropped to a six-month low of INR 55,000-56,000/t ($666-678/t) in early June.

Price pressure from imports: Pressure of cheaper imports from free trade agreement countries like Vietnam and Korea sustained. These countries have turned exporters themselves pushed by weak domestic demand and falling global prices. Prices of imported HRCs from Vietnam have fallen to as low as $590-595/t with the landed costs hovering around $613/t (INR 50,700/t) ex-Mumbai. The same from another FTA country was at $618/t, (INR 51,100/t) ex-Mumbai, far lower than the domestic trade-level INR 55,000-56,000/t ($666-678/t).

Weak exports sentiments: Exports sentiments are still weak. This week, the Steel Authority of India (SAIL) floated a tender for 60,000 t for exports, but failed to receive an active response. The buzz is the management will likely cancel the tender.

Demand from the European Union and Middle East buyers is still highly bearish.

Factors to watch out for

The hike in coal prices is a factor to watch out for. Australian coking coal prices are upping. For instance, CNF Paradip material has crept up since 5 June's $239/t. That apart, CIL effected the price hike. Both factors will raise production costs of larger and smaller mills respectively.

Turkiye's imported scrap prices have witnessed an upward trend by $5/t this week as mills continued restocking demand post-elections. However, the country's national currency, the Lira, has experienced a significant depreciation of nearly 8% against the US dollar after the recent Presidential election, making imports costlier.

The recent recovery in Chinese iron ore and steel prices can also influence Indian mills, although sources say this spurt is short-lived since the fundamentals remain weak.

But, with the monsoons poised for an entry, a hike next month seems less sustainable given the historical price trend of the rainy season.