India: Steel index rises after a 3-week fall, but longs still remain under pressure

The India Steel Composite Index increased a minuscule 0.7% to close at 156.50 points (compared to the closing of 155.40 points for the week ended 7 March, 2023) after dropping for three weeks in a row.

The India Flat Steel Composite Index rose slightly more than longs, by 1% w-o-w to 158.1 points (156.5 points in previous week) while the India Long Steel Index remained almost flat, edging up a negligible 0.32% w-o-w to 154.90 (154.40) in this period.

Factors that pulled up the index

Domestic, exports offers keep flats supported

a) Mills hike list prices: Primary mills had hiked the list prices of hot rolled and cold rolled coils by INR 1,000/tonne (t) towards the week ended 31 March, for April sales. These got reflected in the index for this week.

b) Export sentiments for EU strong: Although India's HRC export index fell by $7/t, export offers to the European Union remained stable at $830-840/t CFR Antwerp which helped to keep the flats index slightly more buoyant this week. The sentiments that emerged from the EU were quite strong.

But having said that, overall, global demand sentiments were down, especially from China, which also impacted downward global prices. Chinese HRC and rebar futures fell sharply till the middle of the week under review. This is possibly because supply has resumed in China but demand has not picked up correspondingly.

c) Trade-level HRC prices remain range-bound: Trade-level HRC prices remained stable in the key markets of Mumbai and Faridabad. Prices hovered at around INR 59,500-60,500/t ex-Mumbai, a factor that also allowed the flats index to stay supported.

d) Consumption up: India's steel consumption in March was provisionally up 7% to 10.99 mnt against 10.26 mnt in February. This fuelled positive sentiments in the market and also kept the index supported.

Longs impacted by price cuts, global billets trade

i) Primary mills reduce rebar prices: Indian primary mills cut rebar prices for early April sales which sharply impacted the longs index. There were certain reasons behind the price cut: 1) Buying sentiments in the trade segment were sluggish because of festivals like Holi, Navratri and Ugadi which kept trade subdued. 2) Demand from the project segment continued to remain dried up while mills nursed inventories in their yards. 3) Trade-level prices of induction-route rebars remained flat on the back of slow buying interest in key markets. Since BF-route rebar prices were cut, the gap between IF-BF route rebars narrowed by around INR 1,000/t m-o-m.

ii) Drop in global billet prices: Southeast Asia's imported billets market remained rather silent of late due to low buying interest amid public holidays in that region. Weakened finished steel demand, declined scrap imported scrap prices and drop in China's SHFE rebar futures were some of the reasons that kept the billets market muted. As a result, India's billets exports market came almost to a standstill and had an impact on longs prices in general.

The billets market in China also remained silent in the first half of the week on account of the "tomb sweeping" festival in China, observed on 5 April.

All the above factors combined to keep BF-route rebar prices under pressure although IF-route remained stable on account of the recent rise in sponge prices.

Outlook

Europe is expecting supply disruptions to the extent of 1 million tonnes (mnt) in its domestic hot rolled coils production which may spell good news for Indian mills. Fires at ArcelorMittal's works in Gijon, Spain and Dunkirk, France have led to suspension of production from one blast furnace each at both works. These developments are expected to lead to a peak shortage in HRCs by June-August.

Allocations for fresh orders will be reduced as several weeks will be needed to get production back to normal levels and longer lead times are of concern. Thus, supply disruptions may provide an opportunity to Indian mills to raise HRC offers in the coming weeks.