India: Limited room with secondary mills for further price correction

Secondary sector billets and sponge iron prices, which had been losing INR 1,000-1,500/tonne (t) since the close of last week, have limited scope of further correction, as estimated by SteelMint.

Prices of induction furnace-grade (IF) billets in Raipur, for instance, have been volatile since the second week of May, dropping from INR 44,000/t levels to a little above INR 40,000/t in end May. They recovered to around INR 43,600/t in the first week of June, again to fall back to above INR 42,000/t levels on 09 June.

Similarly, sponge iron (P-DRI) prices in Raipur dropped quite sharply from above INR 32,000/t in the first week of May to around INR 28,000/t by end May. They rose to a little above INR 31,000/t in first week of June to once again fall to around 30,400/t exw levels yesterday.

Volumes have been increasing with each fall in prices. SteelMint's billet index closed INR 100/t lower at INR 42,600/t exw Raipur and scrap index closed at INR 39,500/t DAP Mandi, registering a drop of INR 200/t.

Why prices may not fall further ?

It would be mainly both, the rising exports and the costs of raw material that are likely to keep secondary mill prices in check.

• Pellets: There have been reported deals of around 700,000 tonnes of pellet exports in the last 10 to 15 days alone from India for July shipments. India exports on average 1.2 million tonnes (mn t) of iron ore pellets per month. Pellets are one of the key raw materials for secondary players. With such huge volumes booked for exports, there are bound to be only limited deliveries for the domestic market. Pellet makers, thus are at an advantage and likely to keep domestic prices firm.
  
  
• Manganese alloys: Prices of silico Manganese (60-14) in the domestic market moved up from INR 90,000/t in Durgapur on May 25 to INR 96,000/t on 08 June, while Raipur prices are ruling at INR 97,250/t, since most of the smelters are heavily booked for exports for the next two months. Here too, the smelters do not have enough material to cater to the domestic market, leading to supply crunch that is supporting the high domestic pricing.
  
  
• With Malaysia's OM Holdings, a manganese and ferro alloys major, suspending operations due to increased Covid cases, most Asian countries are in short supply of manganese alloys. This has lead to increased demand for silico manganese from India. As a result, export prices are up by around $100 over the last fortnight. The 60-14 grade increased from $1,250/t on 25 May to $1350/t on 08 Jun. The 65-16 grade also went up from $1,350/t to $1,460/t over the same period.
  
  

Prices as on 8:45 IST, 10th June. d-o-d changes indicated against closing price of 09th June

Outlook

Domestic steel demand will remain subdued in June and July but that will not translate into a further price fall for secondary mills, because of the raw material cost push. We expect prices to be range bound in short term with limited downside whereas upside is capped.