India: IF-route billets-wire rod margins up 3% in Raipur, down 7% in Durgapur

The conversion spread (margins) from (induction furnace-route) billets to wire rods witnessed a marginal m-o-m increase of 3% in Raipur, in central India, while the same was down 7% in Durgapur, in the eastern region, in June 2022, SteelMint's assessment shows.

On a monthly basis, the average conversion spread was recorded at around INR 4,447/t in Raipur, marginally up 3% and INR 4,658/t in Durgapur, dropping 7% as against May.

Notably, Raipur and Durgapur are two major supply centres for IF-grade wire rods. These are transported from these two hubs to various consuming centres across the country. As per data maintained with SteelMint, cumulative production capacity of these two markets stand at around 20,000 tonnes (t).

However, it is observed that from the middle of June, manufacturers, specifically in the central region, reduced production to maintain the demand supply balance.

Trade and price movement scenario in June

Trade and buying enquiries: In June 2022, purchase enquiries and transactions in the spot market were moderate. Around 68,400 t of tradable quantities were recorded by SteelMint in the Raipur market throughout the month. However, lack of buying enquiries, marginal rise in stock, higher trade discounts via resellers were also noticed till mid-June. This led to production adjustment by mill owners which created a short supply and delay in dispatches in the spot market. Ultimately, with less supply injection, the conversion spread of producers rose.

From the second half of the month, mill owners did not experience any selling pressure owing to adequate future bookings. There were consistent offers and mills marginally adjusted their tradable prices, according to raw material costs, availability and prices in other markets. Pre-monsoon buying also generated demand in the second half of the month.

On the other hand, end-users of finished products like galvanized and barbed wires, and binding wires, who used wire rods and HB wires as raw material, also observed active trade with their production increasing. The above factors led to an improvement in margins of wire rods.

Price movement in June: In June, 2022 the average trade prices of wire rods decreased by 8-8.5% m-o-m to INR 50,483/t in Raipur and INR 50,793/t in Durgapur.

Prices were impacted by many factors like fall in raw material prices, mainly of iron ore, volatile coal and semi-finished steel prices and lack of trade due to higher wire rod prices. The export duty of 15% in most of finished steel products, including wire rods, has made exports unviable. Therefore, mills were depended more on the domestic market.

Outlook: Market participants expect the approaching monsoon to impact wire rod trade volumes and prices. Therefore, a sharp increase in prices is less likely in July.

Further, price corrections will depend on raw material price movements and production cuts from mills. Conversion spreads are expected to remain range-bound in the near term.