India: Conversion spread of billets makers rise up to 30% in Mar'22

The conversion spread from sponge iron to billets rose by 20% m-o-m in Raipur and about 29% in Durgapur in Mar'22. In Feb'22 also, the conversion spread edged up by 5-6% in both regions.

The monthly average conversion spread from sponge P-DRI (pellet based DRI) to billets in Raipur stood at around INR 16,250/t and in Durgapur at INR 18,550/t last month, as per data maintained with SteelMint.

Today, (2 Apr'22), the conversion was recorded at INR 18,800/t in Raipur and INR 19,200/t in Durgapur.

Reasons behind hike in margins-

The month started with manufacturers floating billets offers at higher levels on expectations of a further rise in sponge iron prices with surging global coal prices. Despite prices being at an all-time high level, buyers were actively procuring the semi-finished material.

Looking at these factors, market participants believed that billets prices will remain strong in the domestic market as prices of other metallics i.e., scrap, and pig iron were rising on a day-on-day basis.

However, the second half of the month was completely different. Many buyers withheld purchases due to the correction in prices of raw materials like pellets, sponge iron and coal. Amidst moderate demand following limited enquiries in finished steel products, most market participants opted to wait and watch, resulting in a fall in spot trade and prices, especially of sponge iron.

The monthly average prices of billets rose by INR 8,700-8,800/t in Raipur and Durgapur.

However, the monthly average prices of sponge iron increased by INR 4,600-6,100/t in both locations in Mar'22. But, a sharp surge in billets prices compared to sponge iron, boosted the conversion of billet makers.

Outlook

• Sponge iron prices may remain under pressure due to limited production and price cuts in pellets along with the ongoing volatility in coal prices.
  
  
• Meanwhile, the ongoing power shortage is likely to support billets prices as production will continue to remain limited in the summer season. This may keep sponge demand under pressure, ultimately, improving the conversion of billet makers.