India: HRC-rebar reverse spread deepens m-o-m in Oct'24. Know why?

Morning Brief: The HRC-rebar spread not only remained reversed for the second month in a row in October, 2024 but deepened further m-o-m to INR -5,600/t ($-67/t) from September's INR -2,400/t ($-29/t), reveals data maintained with BigMint.

The October deepening was essentially a function of the average price of the benchmarked BF-route (12-32 mm) rebar rising a far sharper 7% m-o-m to INR 53,800/t ($640/t) against the trade-level HRC's (IS2062, 2.5-8mm) negligible 0.42% at INR 48,200/tonne ($573/t).

Usually, hot rolled coils (HRCs) are sold at a premium to rebars.

Trends so far reveal that rebars have been on a stronger wicket for the better part of the current fiscal (FY'2024-25). The more-than-a-hat trick spell was only broken in August, when HRC became costlier by a mere INR 300/t ($4/t). Thereafter, the reverse swing came into play yet again September onwards.

Imports keep domestic prices down: Tier-1 mills have been fighting several challenges for the past several months which did not allow them elbow room to raise prices sharply. Foremost amongst these is the HRC/plates imports onslaught. Data maintained with BigMint reveals, India's cumulative steel imports stood at 528,477 t till 21 October 2024 and an additional 35,719 t were expected by month-end, taking the total to 564,196 t. This would be lower than September's 776,835 t and August's 627,426 t but another 51,260 t are scheduled to arrive in the first week of November. BigMint's data reveals, trade-level HRCs, ex-Mumbai, in October, were priced lower by INR 3,700/t ($44/t) against China's landed INR 51,900/t ($617/t) in October 2024. However, landed prices from FTA countries were available at a more bothersome INR 47,800/t ($568/t).

Domestic supply glut: Another blow was the domestic supply glut in the face of sluggish demand, with NMDC's Nagarnar Integrated Steel Plant having started commercial production last year and commissioning of JSPL's 5.5-mtpa HSM at Angul. BigMint data shows, India's HRC/plates production upped 2% to 4.85 million tonnes (mnt) in April-September, 2024 against 4.76 mnt in the same period last fiscal and by 5% to 45 mnt over January-September, 2024 against 42 mnt in the same time frame last year.

Poor EU quota utilisation: Data indicates that Indian mills have been able to fulfil a mere 3% of the EU steel safeguard quotas for the October-December quarter. Exports to Europe were hit by weak demand and the anti-dumping probe. Offers from Indian mills were also too high to be workable for EU end-buyers who preferred competitively priced domestic material.

Dumping probes hit exports: Anti-dumping probes from the EU, Vietnam, and Malaysia are putting India, along with China and other countries under the scanner. Turkiye, meanwhile, has already imposed heavy duties of 6.10-43.31% of cost, insurance and freight charges on some steel imports from China, Russia, India and Japan. This move has impacted around 4 mnt of steel imports valued at $2-2.2 billion, as per a Reuters report.

Indian mills return to weak ME export market: China had out-priced Indian mills from the Middle East and Vietnam markets from May-September 2024. The latter returned only from late last month and early October. BigMint's HRC export index resumed from the last week of October at $535/t FOB east coast India. However, offers to the Middle East (ME) fell by $10/t w-o-w to $560/t CFR to match China's $530-535/t CFR UAE. Indian offers to Europe remained stable at $590-595/t CFR Antwerp. Thus, exports offered little support.

Rebar rides private infra projects: Rebars were comparatively positioned better, thanks to emerging demand from the private infrastructure segment which kept mills' order books quite full. However, government infra projects have slowed down as a substantial portion of funds is being diverted to public welfare projects. Sources inform, rebars, in particular, are seeing considerable backlog of government orders.

Production cuts hold up prices: BF mills had undertaken production cuts in January-February in a bid to restore the supply-demand imbalance that had led to an inventory glut. Plus, they again opted for maintenance over April-September, though not all together. That apart, induction furnace mills, which enjoy 65-70% of the rebar market and hence influence BF-route prices, had also undertaken maintenance, mainly in July-September, across regions, which led to production cuts of 20-30%. These initiatives kept BF rebar prices supported.

Raw materials prop up finished prices: Raw material prices rose m-o-m in October, keeping finished steel supported, including flats, despite the latter's poor demand. BF-route mills were impacted as the Odisha iron ore fines index (Fe62%) rose 21% to INR 5,250/t ($62/t), while coking coal, CNF Paradip upped 8% to $219/t ($62/t).

Prices of raw materials that affect the IF segment also increased m-o-m. Domestic melting scrap DAP Mandi, at INR 37,808/t ($450/t) as well as imported CFR Nhava Sheva ($378/t) rose 3% m-o-m. Pellex, DAP Raipur, increased 16% to INR 10,144/t ($121/t) and sponge PDRI, ex-Raipur, by 8% to INR 27,500/t ($327/t) while the billet index, ex-Raipur, rose 6% to INR 40,679/t ($483/t).

The market is looking at November with mixed feelings. Some feel prices may start looking up amid some pent-up demand release in flats. But, buyers may not absorb a sharp hike. In longs, the fundamentals may continue to remain comparatively stronger.