BigMint's India steel index drops to nearly three-and-half-year low. Short-term outlook dull

• Interim Union Budget fails to lift market sentiments
  
  
• Long steel prices fall w-o-w as inventory levels increase
  
  
• Steady inflow of flat steel imports to continue through Q3CY'24
  
  

Morning Brief: The India Steel Composite Index continues to reflect subdued domestic steel market conditions during the week 19-26 July 2024, with steel prices in a firm bear grip. BigMint's flagship index tumbled another 1.2% w-o-w, falling to the lowest level in the last nearly three-and-a-half years. The index had dropped to these levels the last time in March 2021.

On a w-o-w comparison, the long and flat steel sub-indices declined by 1.3% and 1.1% respectively. The market remains under pressure amid influx of imports at predatory prices and there has been no noticeable improvement after the election due partly to the onset of monsoons and the continued global market slowdown. Despite its major thrust on infrastructure development, the interim Budget, too, has failed to lift overall market sentiments.

Factors impacting index movement

Trade-level rebar prices edge down w-o-w: BF rebar prices in the traders' markets fell by INR 600-1,400/t ($7-17/t) w-o-w on subdued buying amid price volatility and weak demand. Market participants in the distribution channel continued to destock inventories. In the projects segment, prices fell by INR 1,000/t ($12) w-o-w.

IF-origin TMT prices descended to a three-and-a-half-year low on soft demand and aversion to bulk deals, slow lifting of material booked previously and discounts by suppliers keen on inventory liquidation. Inventories are idling for 12-15 days against a much lower six-eight days in April.

Data pertaining to India's national highway construction reflected a decline y-o-y in June as well as in Q1FY'25, doubtless owing to the long 45-day election cycle and subdued infrastructure construction activities. Government show cause notices served on many IF rebar mills for failing to satisfy requisite quality standards have also created uncertainty in the market further obscuring the price outlook.

Imports weigh on HRC trade prices: Amid aggressive negotiations by buyers and consistent inflow of competitively-priced imported flat steel into India, BigMint's benchmark HRC prices in the domestic market fell by INR 600/t ($7) w-o-w. Cold-rolled coil (CRC) prices, too, dropped $7/t w-o-w. Bulk HRC and steel plate imports are surging. Imports were assessed at around 349,113 t till 22 July, as per BigMint data, with an estimated 350,849 t expected to arrive by month-end.

Weak export demand: Indian HRC exports continue to remain on hold due to weak global demand and competitive prices offered by Chinese suppliers. Moreover, sales in the European market face challenges due to the summer slowdown and stagnant prices. Some domestic mills have taken maintenance downtimes amid weak domestic and overseas demand, thereby reducing allocations for exports.

Softening raw materials prices: BigMint's assessments of domestic iron ore lump and fines prices show a gradual softening since June but lately fines (Fe62%) prices in Odisha have ticked up marginally after the substantial revision in base prices at OMC's auction triggered buying interest. Premium imported coking coal prices have dropped around $20/t over the last month or so. Domestic sponge iron prices have fallen roughly by INR 2,500-3,500/t across markets since June.

Outlook

The continued downtrend in steel prices is naturally expected to lead to production cuts and domestic mills will try to adjust supplies and inventories by opting for maintenance breaks in order to arrest declining prices.

On the other hand, vessel data shows that the persistent inflow of import shipments is expected to continue well into September (at an estimated 400,000 t) thereby pressuring prices, although the government has mounted vigil by announcing the Steel Imports Monitoring System (SIMS) 2.0.

Therefore, in the short-term, domestic steel prices will remain under considerable pressure and some semblance of a recovery can only be expected after Q3CY'24.

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.

BigMint 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 electric/induction furnace routes. Keeping this broad classification in view, BigMint proposes to release the Composite Index by considering both production routes by manufacturing capacity and the production weighted method to compute the index for India.