India: SteelMint's weekly steel price index drops to one-year low

• Indian steel prices correct as mills raise output after maintenance shutdown
  
  
• Correction in flats steeper than longs
  
  
• Re-stocking demand expected in Sep-Oct
  
  

Morning Brief: The India Steel Composite Index dropped to an almost one-year low (down 1.2% w-o-w) to 152.8 points for the week ending 26 August, 2022. Prior to this, the index had dropped to 152.9 points on 24 September, 2021.

The flat steel index also dropped to a 17-month low to 149.7 points. Such levels were last seen on 26 March, 2021 (146.5).

Longs prices too have dropped to their two-month lows at 155.8 points. On 17 June, 2022, these were at 155.1 points.

Reasons for the drop in index

1. Mills put maintenance behind, raise production: The tier-1 mills have started raising production although these are nowhere near their business-as-usual/optimal levels. But, yes, the production cuts are gradually being put behind and output is limping back and definitely higher than in July. It may be recalled, with demand down in the last couple of months, tier 1 mills had resorted to production cuts to restore the demand-supply imbalance. As a natural corollary to that, longs prices from tier 1 mills have been slightly under pressure. For instance, lately, their rebar prices for the project segment dropped below that of the induction furnace (IF) route. Ex-mill BF-grade rebar prices are hovering around INR 52,000-53,000/t levels (about INR 55,000 - 56,000/t landed price).

"With more production coming into the ecosystem, tier 1 mills are slightly under pressure to offload material and hence the lower rebar prices," indicated a source.

Flat prices have corrected more sharply because the production cuts led to a deeper drop in finished flat steel supply compared to flats.

2. Project demand good but volatility a spoilsport: Project demand is good but buyers are unsure at what prices they should buy. They are not willing to take too long a position because of the price volatility. Hence, procurement is still hand-to-mouth. Many of the large infrastructure developers SteelMint spoke to said their order books are full till the next couple of years but buyers are hesitating against the backdrop of the price fluctuations. They want to wait and watch if prices will drop further.

3. Exports still remain almost stalled: The exports stalemate continues against the backdrop of the 15% duty imposition. There is a strong market buzz that the government will review/roll back the export duty. But even if that happens, the on-ground scenario will not change immediately since demand from Europe, which comprises over 30% of the total overseas sales, is down and likely to remain so in the medium term at least. Moreover, globally, demand is down due to inflationary pressures.

4. Cheaper HRC imports drag down sentiments marginally: HRC import prices are cheaper by 6-7% compared to domestic and hence there is likely to be a short-term impact on price sentiments. But mills feel the volumes are nothing to write home about with domestic demand picking up in exporting countries like Japan, Korea and Russia which will restrain their export allocations.

Outlook
There is a dearth of inventory at the trade level and thus some restocking may happen in September-October. That may take care of demand. However, prices will remain a function of the cost of raw materials. If these (especially coking coal and iron ore) drop, there can be a strong case for price cuts.

The India Steel Composite Index
The India Steel Composite Index is assessed on a weekly basis: every Friday at 18:30 IST, as per the weighted average prices based on manufacturing capacity and production.

SteelMint considers the Composite Index with the base year being 3 January 2020 (financial year 2019-2020) and the base value as 100. The Composite Index does not give the absolute price but a trend of the market. The Indian steel industry is broadly classified into the BF-BOF and the electric/induction furnace routes. Keeping this broad classification in view, SteelMint proposes to release the Composite Index by considering both production routes by manufacturing capacity and the production weighted method to compute the index for India. For details click to view the methodology document.