India: CRC prices under pressure, gap with HRC narrows

The price spread between the two key flat products, hot rolled coils (HRCs) and cold rolled coils (CRCs), has narrowed to a four-month low of around INR 11,100/t ($150/t). The same had widened to a record more than INR 16,500/tonne (t) ($223/t) in mid-Jun'21.

Why has the spread narrowed?

The gap has narrowed, SteelMint notes, mainly because of a downward CRC price movement. Monthly average offers, which had been ruling at over INR 80,000-84,000/t ($1,081- 1,135/t) since end-Apr'21, have slid off this psychological level since mid-Jul'21 to rest in the vicinity of INR 78,000/t ($1,054/t), an INR 6,000/t ($81/t) drop.

Last week, trade reference prices of CRCs (IS 513, Gr O, 0.9mm) lost around INR 1,500-1,700/t ($20-23/t) in a few major markets. SteelMint's benchmark price assessments of 0.9 mm, IS 513 Gr O CRCs dropped by around INR 1,000/t ($14/t) to INR 78,000-79,000/t exy-Mumbai as against INR 79,000-80,000/t seen a week ago. The prices mentioned are exclusive of GST @18%.

HRC prices, on the other hand, have played in a more narrow range of INR 64,000-67,000/t ($864-905/t) since April.

Factors depressing CRC prices

Obviously, CRC prices have been under pressure, and for various reasons.

• High CRC inventories: Mills had diverted more HRCs towards downstream production of CRCs in anticipation of improved demand in the second half (H2) of CY'20. Major automobile and white goods manufacturers had posted good sales as the need for personal mobility and work-from-home trend gained preference due to Covid concerns. However, this led to CRC inventory piling up, putting pressure on prices.
  
  
• Fall in CRC export offers: Export offers for CRCs have eroded by $100/t m-o-m to $1,220-1,230/t FoB India as against $1,320-1,330/t FoB seen at the beginning of Jul'21. Fewer deals were concluded to the European Union at higher offers. Consequently, due to limited trade, mills slashed their offers. Flats exports outlook is dim because of low demand emanating from China, Europe and other CRC destinations.
  
  

Outlook

CRC prices may stay subdued for some time because of the global semi-conductor shortage which is impacting the automotive industry. Domestic automotive production may be under pressure too. CRCs are the core material of the automobile industry, used mainly for the shell and structure of a vehicle.

That apart, cold rolled capacity addition is under way, which will increase supply and impact prices too:

• Tata Steel has undertaken the 2.2-mntpa CRM complex expansion at its Kalinganagar works, under phase II expansion, which is likely to be commissioned in FY'22.
  
  
• JSW Steel is planning to commission a second line at its cold rolling mill (CRM-1) in the flagship Vijayanagar plant, by Q2FY'22.
  
  
• JSPL, in its recent investors call, said it aims to set up a new hot strip mill at its Angul plant to convert semi-finished to finished products. The company wants to diversify its product portfolio from the present HRCs and plates to CRCs and galvanised products by FY'24.

  

  
  Prices as on 9:00 IST, 19 Aug. d-o-d changes indicated against closing price of 18 Aug.