India: Conversion spread of billet makers down 7-16% in Nov'22

In Durgapur and Raipur, the conversion spread from sponge iron (PDRI) to billets fell by 7% and 16%, respectively, in November 2022. On the other hand, in both locations, during October, the conversion spread had increased by 1% and 4%, respectively.

SteelMint data indicates that in November, the average monthly conversion spread from sponge P-DRI (pellet-based DRI) to billets in Raipur and Durgapur was approximately INR 13,401/t and INR 14,731/t, respectively.

On 5 December, the conversion rate was determined to be INR 13,000/t in Raipur, and INR 13,600/t in Durgapur.

What made the margins fell?

As per data maintained with SteelMint, Raipur billet prices dropped sharply to a one-year low. The previous low of INR 41,950/t exw was recorded on 23 December, 2021. In November, low demand for finished steel products, a minor increase in supplier stockpiles, and persistently slow trends all contributed to a downward pressure on billet prices.

Domestic billet and sponge iron prices both decreased in November. In November, steel prices were falling, which put a lot of pressure on market players. The lacklustre demand for finished steel made it difficult for the market to stabilise.

However, the removal of export duties on steel and other important raw materials for the production of steel caused a 10% increase in billet prices by mid-November. In anticipation of an upward trend after the removal of duties, suppliers floated higher offers.

Overall, these were the main causes of the monthly decline in billet prices in Raipur and Durgapur.

Price overview

• In November 2022, the monthly average prices of billets in Raipur and Durgapur dropped significantly by INR 3,800-4,700/t.
  
  

• On the other hand, during November 2022, both locations reported a considerable decrease in the monthly average sponge iron prices by INR 2,100-2,600/t.
  
  

Outlook

It is unlikely that margins of billet producers will increase this month. There may be only minor changes in the conversion spread in December as prices of sponge iron and billets are likely to remain volatile amid bearish global trends.