India: Pig iron prices to stay stiff on supply crunch, raw materials cost push

With key mills announcing maintenance-related shutdowns, supply tightness has gripped the domestic merchant pig iron market. Leading foundry grade pig iron producer Vedanta Limited has announced that one of its big blast furnaces will remain idle till Jan'21 due to routine maintenance purposes thereby affecting monthly production of around 40,000 t. The metals major's pig iron capacity is over 0.6 mn t per annum.

As per sources, western India based one of renowned foundry pig iron producers has cancelled all pending orders for pig iron due to production loss and sharp surge in prices. Moreover, Vedanta is also accepting limited orders due to less output, SteelMint has learned from distributors. Orders are trickling in fast and producers are not under any selling pressure.

As key pig iron producers in the eastern and western parts of the country bank their furnaces, SteelMint estimates that impact on daily production should be in the region of 2,000 t.

SteelMint assesses current pig iron (steel grade) prices at INR 35,000/t (DAP Durgapur) - a rise of INR 4,500/t in the course of one month. As SteelMint reported on 18 Dec'20, a recent auction for 5,300 t (foundry grade) pig iron fetched a price of INR 41,000 -41,300/t. Spot (foundry grade) pig iron prices have shot up by INR 1,300/t to INR 41,200- 41,500/t (FoR Ludhiana).

The reasons behind the sharp hike in prices are not far to seek. Melting scrap prices have soared globally due to supply crunch and lack of containers. Similarly, iron ore prices are on a roll, with Central PSU NMDC as well as Odisha merchant miners announcing successive hike in prices over the last couple of months. In addition, supply crunch of pig iron has fuelled the rally.

Interestingly, supply shortage has paved the way for integrated steel-maker SAIL to record over 115,000 t of pig iron sales in the merchant market in Oct-Nov'20. As per SteelMint reports, SAIL's pig iron auctions from its different plants (Branch Sales Offices) are receiving active participation, with prices shooting up at recent auctions.

Explaining the price outlook, a senior executive with a leading domestic pig iron manufacturer told SteelMint: "Current restocking demand in China ahead of the Lunar New Year holidays are keeping prices stiff. Benchmark Fe 62% iron ore fines are hovering at 8-year high levels of $160/t. Strong manufacturing fundamentals in China are expected to keep steel demand at elevated levels. Similarly, domestic raw materials prices are expected to remain high till Mar'21. In fact, there are no reasons for prices to drop."

"Indian secondary manufacturers have been impacted by stiff raw materials prices which have affected capacity utilisation. Considering the current crunch in domestic pig iron supply, it doesn't look like prices are going to correct downwards anytime soon," he added.