India: IF-route wire rod conversion spread increases 4% in Raipur

The margins for converting billets into wire rods (also called conversion spread) increased by 4% in Raipur, whereas in Durgapur the same dropped by 3% in Sept'21, as per SteelMint's assessment.

The monthly average conversion spread was at around INR 3,130/tonne (t) and INR 2,650/tonne (t) in Raipur and Durgapur respectively throughout the month. However, in Aug'21, the conversion spread dropped by 21% and 15% in both the locations, Raipur and Durgapur, respectively, m-o-m.

Today, (1 Oct'21), the conversion has been recorded at INR 3,400/t in Durgapur and at INR 4,800/t in Raipur.

Analysis

In Durgapur, the conversion spread was lower due to limited sales in the market during the period Aug-Sept'21. Demand was affected in the north region (especially in Bihar and UP, two major buyers of wire rods) due to heavy rains, which impacted local transport.

Also, increasing prices made local buyers cautious, resulting in purchases of finished goods (wire rods) in limited quantities.

Meanwhile, in Raipur, curtailed production at a few plants have resulted in a price rise as well as improvement in the conversion spread. Roughly, the plant's wire rod production during the third week of Sept'21 was at 70-80% in Raipur. This in turn supported prices despite weak demand.

What may happen?

It is expected that seasonal improvement in demand for finished products may also support the conversion of wire rod mills. Also, prices are expected to trend northwards in the coming days as plants have received healthy orders in the last 2-3 days.