India: IF-BF rebar spread narrows, raw material prices and rising inventories a concern

The spread between Blast Furnace (BF) grade and Induction Furnace (IF) grade rebar has been narrowing. SteelMint's price assessment for IF route rebar stood at INR 48,900/t exw Delhi as on 17 Jun and that for BF route at INR 53,400/t exy as on 12 Jun. However, both secondary and primary mills are under pressure but for different reasons.

Rising cost of Raw material

Rising domestic iron ore and pellets prices in the merchant market are weighing on secondary mills. For instance, Odisha lump price of Fe 63% shot up from less than INR 12,500/tonne (t) in end-May to almost INR 14,500/t ex-mines in the second week of June. As a result, faced with narrowing margins, the IF mills do not have much headroom to lower their rebar prices and the only option is to pass on the cost to the customer.

Rising Inventories

On the other hand, the larger mills are lowering their offers, especially in the project segment, in a bid to offload inventory. SteelMint has heard that ex-mill offers at INR 50,000/t are being floated but some mills are even ready to offer discounted prices of INR 48,000-49,000/t, ex-mill since inventories are piling up.

Primary mills account for almost 33% of the total rebar production in the country. Around 70% of the rebar production goes into infrastructure projects. However, large mills too are under pressure because of a number of following factors:-

• One is the double whammy of the Covid-induced lockdowns and onset of monsoon which has significantly impacted consumption of long products.
  
  
• Second and more importantly, sources have confirmed that construction segment players have made a presentation to the government, seeking monitoring and lowering of rising rebar prices as they were facing sharp cost overruns. Infrastructure developers are, thus, slowing down or delaying purchases, awaiting the government's response and an anticipated drop in prices.
  
  
• At the same time, the primary mills are also experiencing limited options in the rebar export markets. SE Asia is not in an active buying mode, mills there preferring to purchase from local mills. It is heard that offers have been floating for Indian rebar exports for $740/t CFR Hong Kong, however no deal has been confirmed. Another private mill, which generally floats tenders for ocean exports (ex-Nepal markets), has recently started offering for Nepal as well.
  
  

"No significant export deals are being concluded by the larger mills although they are trying to push volumes to liquidate some inventory. On the other hand, IF mills cannot lower their prices because of iron ore rates," said a market source.

Prices as on 8:55 IST, 18th June. d-o-d changes indicated against closing price of 17th June