India: Billets to wire rod conversion spread jumps 34% in Mar'22

The conversion spread (margins) from steel billets to wire rods manufactured via induction furnace (IF)-route in Mar'22 saw a sharp 34% increase m-o-m in both Raipur (central India) and Durgapur (eastern India) markets, SteelMint's assessment shows.

The average conversion spread was recorded at around INR 4,610/tonne (t) in Raipur and INR 4,425/t in Durgapur in March.

Notably, Raipur and Durgapur are the major IF-route wire rod supplying markets in India. As per data maintained with SteelMint, the daily production in Raipur stands at around 10,000-11,000 t and in Durgapur at 6,000-7,000 t.

Out of the total wire rod production in India, the induction furnace-route contributes about 55-60%, while the rest is produced through blast furnace.

Factors supporting wire rod margins- Higher production costs: The rising trend of raw material prices continued in Mar'22 which pushed wire rod manufacturers to raise prices. Prices increased by 19% to INR 61,780/t in Raipur and INR 62,060/t in Durgapur, respectively.

Supply shortage: A few major wire rod suppliers in Chhattisgarh, with a daily production of up to 1,000 t, had either undertaken maintenance shutdown or shifted to selling other commodities in the domestic and exports market to maintain profitability. This created supply shortage of wire rods in the spot market, resulting in price hike.

Active trade, buying enquiries: Wire rod trade remained active last month, giving producers the confidence to consistently lift prices. However, from the middle of the month, prices saw fluctuations after rising consistently, creating fear among traders regarding procurement of the material. During Holi, bulk trading activity also weakened, forcing sellers to offer trade discounts by up to INR 2,000/t to liquidate their material.

Meanwhile, on basis of previous bookings, mills adjusted offers in accordance to the raw material price movement, to avoid eavy discounts from resellers.

On the other side, end-user industries of the finished products, like galvanised wire, barbed wire, binding wire industries who use wire rod and HB wire as a raw material also observed marginal improvement in spot trade.

Outlook: The current trend shows that prices are already at a higher level. A further rise in prices will impact trade and buying decisions. However, the future trend is uncertain and will largely depend on the raw material movement.