Indian steel index drops w-o-w, price spreads between flats and longs at 1 year high

The fall continued for the 12th week. The India Steel Composite Index inched down further by 0.7% to 142.20 points (143.20 points last week) for the week ended 7 July 2023.

As with the previous week, this week too, the India Flat Steel Composite Index remained almost flat at 146.20 points (146 points).

However, the India Long Steel Composite index lost 1.50% to close at 138.40 points (140.50). The price spread between flats and longs indices has risen to over 1-year high of 7.8 points, as similar levels were seen in Jun'22.

Factors influencing the index last week

1. Mills roll over HRC-CRC list prices: Tier-1 mills announced a "roll-over" of the prices of hot rolled and cold rolled coils for July sales. However, effective prices were in actuality lower by a marginal INR 1,000-1,500/tonne (t). The 'roll-over' was induced by the fact that the trade segment had refrained from reducing their prices in June on the basis of the nominal need-based procurement that took place which led to some inventory depletion.

2. Global markets recover: Inflation in Europe fell for the second straight month in June. Consumer prices in the Euro zone rose 5.5% last month but were down 6.1% from May levels. Euro area energy inflation has also fallen 5.6% in June compared to a dip of 1.8% in May.

As a result, there has been a slight resurgence in demand from the European Union. Indian mills kept their offers to the EU range-bound at $670-675/t CFR Antwerp after upping them by $5/t in the previous week. There can be some restocking ahead of the summer vacation, which usually lasts over July-September.

Chinese offers to the Middle East rose $15-20/t w-o-w to $600/t CFR amid hike in steel futures and 30% production cuts in Tangshan.

3. Japan mill in maintenance mode: Even though demand is not sharply up, Japanese steel major Nippon Steel is likely to raise its HRC prices for September shipments to $680/t CFR EU and $630/t CFR Asia, encouraged by two factors. One, it has planned a maintenance shutdown of its HRC mill for 10 days which will squeeze out 200,000 tonnes of production. Two, the company is booked till August on the back of increasing exports to the EU, Middle East and Korea amid limited allocations.

4. Pressure of imports dissipates: Most of the exporting countries, especially Vietnam, have become sold out, encouraged by the higher prices offered from EU buyers. With the uptick in global prices, imports will now become costlier and thus discourage price-conscious Indian buyers. Earlier, these were INR 5,000-5,500/t cheaper than domestic.

5. Mills divert flats for captive use: Many large mills, which had acquired standalone rolling mills, are now concentrating on diverting their HR and CR coils to the latter for captive consumption (to produce value-added flats). Hence, the scenario has changed since the last year, when they had a surfeit of flats to offer. This is a key reason why flats prices have been range-bound for some time. Mills are not under too much pressure to export.

Longs

a. Tier-1 mills slash rebar prices: Tier-1 mills reduced rebar list prices by INR 3,000/t ($36/t) m-o-m for early-July sales. The drop was impelled by a few factors. One was falling raw material prices. The Fe 62% iron ore fines dropped by INR 150/t m-o-m to INR 5,350/t in June (INR 5,500/t). SteelMint's weekly Odisha iron ore fines Fe62% index dropped INR 150/t w-o-w to INR 4,800/t ex-mines as on 8 July. Coking coal has moved in a narrow range. Secondly IF-grade rebar prices also fell due to higher production. Since these control the lion's share of the market, primary mills were forced to further lower prices.

b. Increase in domestic coal supply: Domestic coal availability to the non-power sector, which was more often than not, in short supply, has increased. National coal miner Coal India (CIL) has allocated a higher volume for e-auctions compared to the usual on the basis of a projected higher production of 780 mnt this fiscal. Higher coal availability will inevitably pressure down prices.

Outlook

The larger mills say lowering prices from the current levels will be difficult henceforth. They are also not committing any discounts.

But the monsoons are likely to keep markets slow for the next couple of months.

Iron ore price revisions by NMDC and OMC are factors to watch out for, since these influence finished prices.

With China announcing production cuts in Tangshan area, there can be a re-balancing of demand and supply in the second half. This will have repercussions globally. Indian mills can benefit from lower supplies from China.

However, the depreciating Chinese yuan (RMB) and Russian rouble can boost exports, and lower offers.