India: Billets conversion spread slips 3-4% m-o-m in Nov'21

The margin for converting sponge P-DRI to billets, also known as the conversion spread, dropped by 3-4% in Durgapur and Raipur in Nov'21, according to SteelMint's assessment. These margins were around INR 13,800/tonne (t) in Durgapur and INR 13,100/t in Raipur in Oct'21.

On a daily basis, today, (1 Dec'21), the price gap was recorded at INR 12,900/t in Raipur and at INR 12,900/t in Durgapur.

Reasons behind falling margins

Throughout November, there has been a significant decline in domestic sponge iron prices which were majorly impacted by falling coal prices alongside decreasing semi-finished steel prices. Overall, poor buying interest in finished steel has resulted in a decrease in billet prices in both Raipur and Durgapur.

Analysis

The monthly average domestic sponge prices plunged by INR 3,700-4,000/t in both central (Raipur) and eastern (Durgapur) regions while monthly average billet prices fell sharply by INR 4,100-4,600/t in both locations, as per data maintained with SteelMint.

Billets demand was also stagnant with dull demand seen for finished steel in the domestic market.

Outlook

Prices of sponge iron and billets are most likely to remain under pressure amidst the recent price reductions in pellets and iron ore lumps in central India. Along with the ongoing volatility in coal prices and subdued finished steel demand, there might be slight fluctuations in the conversion spread in December.