India's wire rods production stable in FY23; outlook positive

India's wire rod production remained more or less stable, inching down slightly by 4% to 6.41 million tonnes (mnt) in financial year 2022-23 (FY23) against 6.68 mnt recorded in FY22.

The main producers in the primary sector were Steel Authority of India (SAIL) and Tata Steel with each registering 0.83 mnt of production last fiscal. While Tata Steel's remained stable y-o-y, SAIL saw a 6% increase. Second was JSW Steel, which saw a y-o-y fall of 34% to 0.76 mnt against 1.16 mnt in FY22. In third place was Rashtriya Ispat Nigam Limited (RINL), whose production remained flat at 0.58 mnt. Jindal Steel & Power (JSPL) was in fourth spot, with output also stable at 0.36 mnt (0.39 mnt in FY22).

The BF-route material enjoys 65% of the market.

Factors behind stable wire rods output in FY23

Export duty impact: The 15% export duty slapped in May 2022 had a major impact on wire rods production. Export sales plunged 78% in FY23 to 0.25 mnt against a far more voluminous 1.14 mnt in FY22, leading to inventory pile-up and consequently no marked increase in production.

Global demand drops: In a double whammy, last year was also marked by a general drop in global demand for finished steel, including wire rods. For instance, Nepal which was the leading wire rods importer bought much less. Exports to this Himalayan kingdom dropped 61% to around 87,000 tonnes (t) in FY23 compared to 0.22 mnt in the preceding fiscal. Nepal's ballooning imports, balance of payments crisis, declined forex reserves, sliding currency and inflation eroded its purchasing power. It also increased its own melting capacities to reduce dependency on imports.

Taiwan's imports plunged 95% to a mere 7,500 last fiscal compared to 0.14 mnt in FY22 while the US saw an 86% drop to over 20,000 t (0.14 mnt). In Europe, demand was silent for the better part of the year. The global long products market has been impacted by declining imports and exports and lack of supply-demand balance.

Domestic demand was moderate: Last fiscal was characterized by moderate buying activities in the domestic market because of higher interest rates which impacted buyers' purchasing power. Moreover, demand from major end-users like automobiles, and the engineering, procurement and construction (EPC) segment was need-based. They preferred short-term contracts to long-term ones due to the high volatility in prices and market uncertainty. Since buyers preferred short-term contracts, wire rod prices remained on the higher side.

Raw material cost push: Prices of raw materials and semi-finished increased last fiscal. For instance, billets prices in the key market of Raipur rose by INR 3,300/t to INR 47,800/t in FY23 from INR 44,500/t in FY22. Sponge iron was up marginally by INR 800/t to INR 32,500/t (INR 31,700/t).

Iron ore prices (Odisha's Fe62% fines), however, fell to INR 4,340/t last fiscal (INR 6,800/t in previous fiscal).

The overall cost push led to average prices of BF-route wire rods in the Jharkhand market rising by INR 4,800/t to INR 59,100/t in FY 23 (INR 54,300/t in FY22). Average IF route prices in FY23 were up INR 3,850/t to INR 52,100/t (INR 48,250/t in FY22). Percentage-wise, prices of both increased around 9% keeping the gap between BF and IF stable at INR 7,000/t in FY23 (INR 6,000/t in FY22).

New capacity additions: New IF-route capacities were added which helped to keep production stable. Mills got commissioned in Jharkhand and Odisha with annual production capacities of around 0.3 mnt and 0.21 mnt respectively. However, in Raipur, a few major producers stopped production of wire rods.

Outlook

The outlook seems positive in terms of demand in the medium to long term.

There is an urgency to complete certain infra projects ahead of the monsoons. Plus, rural demand for barbed wires etc increase in the pre-monsoon period.

That apart, with all eyes on the general elections in FY24, there will be an accelerated push on completion of government-funded infra projects. This scenario will keep demand for wire rods buoyant over the next 8-9 months. Robust demand may see production rising in tandem.

Prices will be partly governed by the raw material cost graph movement in domestic and overseas markets.