India: Raw materials price uptrend continues in March; but corrections likely soon

• Raw material prices rise by 5-35% in March
  
  
• Imported thermal coal prices from SA show highest m-o-m increase
  
  
• Russia-Ukraine war contributes heavily to price increase
  
  
• Price rally sends buyers to sidelines
  
  
• Downward correction likely in April, to re-ignite domestic demand
  
  

Morning Brief: Semi, finished and raw material prices sustained their upward trend m-o-m in March. Prices across commodities rose by 5-35%, SteelMint's data reveals, with portside prices of South African RB2 thermal coal leading the charge.

Sustained geo-political tensions led to substantial trade flow changes, with vessels avoiding the Black Sea route while Ukraine ports continue to be blocked by Russian sieges.

Coal: The bi-weekly index tracking the average portside ex-Gangavaram prices of the South African RB2 5500 NAR rose a sharp 35% m-o-m in March, 2022 to INR 21,500/t against INR 15,980/t in February, 2022. This grade, particularly used by sponge iron units, saw buyers moving to the sidelines with offers hovering at INR 24,500/t, while there were no takers at INR 26,000/t. With the war stopping exports of coal from Russia and Ukraine to the European Union (EU) and Turkey, these two geographies are sourcing from South Africa. Consequently, vessels are being diverted to these regions, making availability scarce on the Indian side, which is supporting the record-high price levels.

The domestic G9 grade (4750 k/cal) from South Eastern Coalfields (SECL) auctions fetched an average monthly price of INR 6,640/t. No auction took place in February amid tight domestic supply. Prices were up in March due to the prevailing supply tightness. Also, with the recent introduction of the single window, auction sales saw increased participation across sectors. It may be recalled, sector-specific auctions have been scrapped.

Ferro alloys: Prices of the bi-weekly 60:14 grade silico manganese index emerging out of Raipur rose 20% m-o-m to INR 118,700/t in March, 2022 against INR 98,870/t in February, 2022. A sharp rise in export enquiries led to panic buying which boosted prices at the beginning of March although these cooled down by end-month. From INR 124,600-128,000/t (in Durgapur and Raipur respectively) these dropped to INR 112,000/t levels ex-works, as export offers dropped $15/t w-o-w month-end to $1535/t.

As markets served by Ukraine turned towards India, export offers rose. Moreover, prices were supported by costlier raw material like manganese ore and coke, while demand from the project construction sector kept steel demand and prices supported.

Coking coal: Average prices of the Australian low-vol HCC were up a substantial 32% m-o-m in March to $620/t against February's $470/t.

The premium HCC hit $670/t FOB and $700/t CNF India on 15 March, 2022 although no trade happened at these stratospheric levels. Russia exported a substantial 32 mnt of coking coal in 2021 and mostly to the EU. In fact, Russia supplies around 30% of EU, Japan and South Korea's coking coal requirements. The war-led supply disruptions made the EU turn to Australia for the material which sparked a price rally like never-before. However, with buyers scalded and moving to the sidelines, prices are showing a dip.

Scraps and metallics: All showed a sharp uptrend ranging from 14-24%, influenced by heated imported coal and semis prices.

The pellet-based P-DRI, ex-Raipur, increased 18% to INR 40, 900/t in March, 2022 (compared to INR 34,800/t in February, 2022) riding the escalated RB2 prices from South Africa while domestic supply from Coal India remained constrained.

Pig iron prices gained a noticeable 24% m-o-m to INR 58,600/t (INR 47,350/t) in the month under review on rising coking coal and met coke prices. Coke is used as a reductant in blast furnaces and is derived from coking coal. Thus, pig iron's price movements are highly dependent on both inputs. Also, demand for pig iron, especially from the USA, turned active on growing supply concerns amidst trade war. Indian pig iron producers concluded export deals for sizeable volumes to western countries, with the highest share of exports bound for the USA.

Domestic scrap (ex-Mumbai) was up 14% to INR 44,000/t in March, 2022 against INR 38,580/t in the previous month, propelled by the rally in the first half of March. The hike in semis' prices and shortage in material as government checks were rampant to curb illegal transactions helped to maintain the rally. The higher sponge prices acted as a catalyst too.

Steel: This segment, comprising semi- and finished, saw an uptrend of 11-21%. The ex-Raipur billet index gained 18% m-o-m to INR 57,100/t (INR 48,380/t) in March on higher coal and other input material prices.

The ex-Mumbai BF-grade re-bar gained 15% to INR 71,200/t (INR 62,000/t), and IF grade by 21% to INR 68,400/t (INR 56,750/t). Wire rods (ex-Durgapur) rose 19% to INR 62,000/t (INR 52,160/t).

The high raw material prices impelled mills, primary and secondary, to raise prices across longs and flats. The heated up thermal coal prices hit the secondary sector who serve two-third of the rebar market in India. Thus, the IF-grade rebar price spurt was the sharpest, at 21%, which compelled primary mills to pull up their price tags. Need-based procurement from the projects segment also supported long product prices.

Ex-Mumbai trade level HRC prices gained 11% to touch INR 73,500/t (INR 66,320/t) m-o-m. Export bookings kept mills comfortably placed, which encouraged raising of flats prices.

Iron ore: This raw material, in terms of fines, lumps and the high-grade 63% pellets, rose 5-11% m-o-m in March, 2022. Fe63% fines from Odisha were up 8% to INR 6,750/t (INR 6,240/t) while the Fe63% lumps (Odisha) upped 5% to INR 10,500/t (INR 10,000/t). Fe63% pellets (DAP Raipur) gained 11% m-o-m to INR 13,800/t (INR 12,420/t).

Prices were boosted by certain factors. The small merchant miners had exhausted their environmental clearance (EC) limits, which led to tight availability of both fines and lumps. Where pellets are concerned, from end-February till early March, there were considerable export bookings, mainly to the EU. Hit by lack of supply from Russia-Ukraine, the region turned towards India for spot cargoes. This trend boosted domestic iron ore and, of course, pellet prices. However, by month-end, export enquiries had lessened which impacted semi-finished and sponge prices. This, in turn, dragged down prices of iron ore and pellets by March-end.

Outlook

The price levels of March are not sustainable, driving buyers to the sidelines, subduing demand. Prices may have peaked across categories and are already showing a dip, as in coking coal and IF-grade rebar. More price corrections are likely in April.