India: Flat steels correct further. But are prices nearing the bottom?

• Flats index dips further as mills, trade segment cut prices
  
  
• Coated products, however, see new bookings from Europe
  
  
• Europe's likely return, China's eased Covid rules dispel some gloom
  
  

Morning Brief: The India Steel Composite Index remained almost flat for the third week in a row, rising a negligible 0.1% to close on 9 December at 146.10 points (146.10 points in the previous week). Importantly, the flats index dropped 2.06% to 142.70 (145.70) points. Longs upped by 2.05% to 149.40 (146.40) points w-o-w.

What factors are still dragging down flats?

1. Price cuts by tier-1 mills, trade segment: On a w-o-w basis, the flats index dipped on account of the price cuts that tier-1 mills took around 5 December. Mills, in fact, slashed hot rolled coil (HRC) prices by up to INR 3,000/t and that of cold rolled coils (CRCs) by up to INR 4,800/t but rolled over rebar prices. Taking a cue, trade-level prices dropped to their two-year lows.

2. Imports spook mills: Imports have been a spot of bother for mills and could be a reason behind the price cuts. Some pipe manufacturers are heard to be booking HRCs, eschewing procurements from a domestic tier-1 mill. November saw some HRC volumes arriving from Japan. Sources say, around 80,000 to 90,000 tonnes were booked in end-November-early December from Vietnam too. These cargoes are slated to be delivered end-December and January. Landed prices are still working out to be cheaper. SteelMint's benchmark trade-level HRC prices, post-reduction, hover at around INR 54,100/t while imports are at around INR 49,000/t.

3. Exports still damp squib but coated segment sees action: Exports of HRCs-CRCs are yet to resume fully. Thus, mills are not getting the bandwidth to increase prices in the domestic market. Globally, sentiments are still down and importing countries are not really coming forward to buy much, a key factor failing to pep up the export scene post-duty removal.

However, mills have booked some volumes of coated steels to Europe. Since an overwhelming 70% of Indian coated steel market lies in Europe, this spells optimism for mills. SteelMint learnt of 50,000-60,000 t of bookings made with a large mill recently against nil enquiries a fortnight back. Prices are being assessed at $810-820/t FOB India west coast.

Longs stay supported
Meanwhile, longs prices are not so much under pressure because of the following reasons:

1. Energy price push: Imported thermal coal's portside prices are still ruling at INR 16,000/t, a far cry from the INR 13,000/t or even less seen at the beginning of 2022.

2. Pellets costlier: Domestic pellet prices, DAP Raipur, are up by more than INR 1,000/t as exports resumed after the export duties were revoked.

3. Construction ban lift: The construction ban in the Delhi-NCR region was recently lifted which will give a further boost to longs offtake and thus prices. Infra demand, in any case, has been moderate and is offering some support to longs.

Outlook
Mills are expected to dispatch coated materials in January and are also likely to see fresh bookings for February. "The current volume of coated products manufactured in India cannot be consumed fully by the domestic market and therefore exports have to be an option," remarked a source.

Secondly, there are indications that European buyers may return to the market from January, which also spells optimism for Indian mills.

Thirdly, with China looking to relax its Covid lockdown policies, demand in the world's largest steel producing and consuming country will increase. This, in turn, will help to lift sentiments globally - an increase in iron ore and coking coal prices being such an indication. That apart, if home demand increases, China will go slow on exports and offer Indian mills an opportunity to regain lost markets.

Flat steel prices may take another round of INR 4,000-5,000/t cuts to bring them on par with imports, as per sources. But post that, further falls may be limited. "Flats prices are nearing the bottom," observed a source.