India: Steel index up 2% as IFs feel cost pressures, global prices rise

The India Steel Composite Index, after remaining more or less stable for almost a month, showed a sudden sharp upturn for the week ending 30 December, 2022. It rose 1.9% to close at 148.60 points (145.80 points in the previous week). The flats index upped 0.98% to 144 (142.60) points. Longs rose a more substantial 2.82% to 153.10 (148.90) points w-o-w.

Factors supporting increase in longs prices

1. Sponge iron production crackdown: Longs have shown a sharper jump compared to flats. One key reason lies in the disruptions in sponge iron production being effected in Odisha due to the World Cup Hockey tournament that will unfold over 13-29 January, 2023. In a bid to reduce pollution, the 22 sponge plants have been asked to shut down from 5-28 January in Rourkela belt. The expected production loss is around 100,000 t.

With the reduced production, sponge iron prices in Odisha have increased which is impacting billets and rebar prices in a cascading effect. Steelmint's sponge iron index has increased by INR 2,000/t ($24) in the last 10 days.

The market has factored in this development and end-users have already stocked up well. "Prices of longs have risen because of the increased cost of production for the induction furnace (IF) players, for whom sponge is a key feed," said a source.

2. Pig iron exports resume after 7 months: Exports of this metallic, another important IF feed, have resumed after seven months. India had exported a record 1 million tonne of pig iron in 2022. However, post-the export duty imposition in May last year, exporters refrained from selling overseas, saying, the duty rendered it unviable. However, a recent deal is the first after removal of the duty. With exports resuming, domestic supply will be slightly lesser and push up prices.

Steel-grade prices from Durgapur are already up by INR 3,000/t to INR 43,500/t w-o-w.

3. Chhattisgarh raises power tariffs: The Chhattisgarh State Electricity Regulatory Commission increased power tariffs with effect from 25 December 2022 by INR 1.10/unit which will be applicable in December 2022 and January 2023. Standalone furnaces and hot-rolling mills (HRMs) consume about 750-800 units to produce one tonne of billets while rolling mills consume around 100 units and sponge iron producers 60-80 units, to make one tonne of material.

Raipur in central India is a big hub of small and medium scale steel mills.

With the increase in IF-route longs prices, primary mills have also raised their offers. BF-route rebar prices were hiked last week by around INR 1,000/t pulling up the revised offers to around INR 59,000/t DAP Delhi.

Flats

a. Global steel prices rise: Import bookings from Europe had been subdued because of the year-end holidays but hot-rolled coil (HRC) prices from domestic EU mills are likely to increase in January 2023, on demand upturn expectations and lower supply. In Northern Europe, HRC offers rose above Euro 700/t ($745/t) compared to Euro 650-680/t ($692-$724/t) in December. Production cuts during the third and fourth quarters of 2022 and potential growth in end-user demand will lead to price hikes. Prices from Italian producers in early 2023 may touch Euro 670-680/t ($713-$724/t) as they return after 9 January. This scenario will encourage increase in both domestic and overseas offers from Indian mills.

Outlook

Domestically, the current quarter is expected to be better and project segment demand has been decent and will continue to be so, say infra players as project deadlines for the current fiscal near.

However, the price increase in longs is mainly due to the cost pressure and not impelled by demand and may normalize once costs ease.

In exports, mills had withdrawn flat export offers last week on the premise that offers will rise post-holidays.

India Steel Composite Index

The India Steel Composite Index is assessed on a weekly basis: every Friday at 18:30 IST, as per the weighted average prices based on manufacturing capacity and production.

SteelMint considers the Composite Index with the base year being 3 January 2020 (financial year 2019-2020) and the base value as 100. The Composite Index does not give the absolute price but a trend of the market. The Indian steel industry is broadly classified into the BF-BOF and the EAF-IF routes. Keeping this broad classification in view, SteelMint releases the Composite Index by considering both production routes by manufacturing capacity and the production weighted method to compute the index for India. For details click to view the methodology document.