India: IF-based rebar mills in Chhattisgarh running at only 60% average capacity

TMT mills in Chhattisgarh - one of India's most active manufacturing and trading zones of Rebar (IF based) - are being forced to drastically curtail capacity with acute lack of demand in the construction segment during the prevailing monsoon season.

Some manufacturers told SteelMint that the situation is undoubtedly the worst in over a decade. According to SteelMint's analysis, average capacity utilization of secondary rebar mills in the state fell to around 60% in Aug'20 and it looks like the situation will persist throughout Sept'20.

Induction furnace (IF) based rebar producers in the state, with an annual capacity of 6 mn t, have high levels of inventories at mills amid demand dearth. One producer told SteelMint that he was running his two units - one for rebar and the other for structurals - at considerably lower utilization rate. The rebar mill is running only at 50% capacity while the overall utilization rate is 30%, he informed, adding that he was unable to sell the products at even INR 300/t lower than the prevailing market price. Another TMT producer with a monthly capacity of 36,000 t informed SteelMint that his plant is currently running at 60% load and since he joined business in 2009 he has never before witnessed such an acute recessionary spell.

Rebar producers in Chhattisgarh sell their materials to buyers in Madhya Pradesh, Uttar Pradesh, and South India, apart from downstream consumers within the state itself. While the monsoon-ravaged MP market is struggling to get back on its feet, in UP too paucity of demand is no less acute. In Chhattisgarh, on the other hand, coronavirus cases are on the rise which has contributed to dampening market sentiments.

Another TMT and pipe producer in Raipur said that while demand for pipes is average compared to other finish steel and he is being able to sell products, rebar demand has dropped to almost zero with hardly any good inquiries. Demand for pipes, he said, is good as elevated HRC prices are pushing pipe prices higher of main producers. The manufacturer informed that he was running his plant at 60% capacity including all finished steel facilities.

As assessed by SteelMint, the average rebar price in Raipur for Aug'20 was recorded at INR 32,738/t higher than INR 30,863/t in Jul'20 mainly because of high input cost. However, with average billet prices at INR 29,875/t in Aug'20, the conversion spread from billet to 12 mm rebar has dropped by 3% in Aug'20 against Jul'20 due to low demand. Of course, the narrowing conversion rate is squeezing producers' margins.