India: Rebar conversion spread narrows sharply by up to 34% in Jul'21

The induction furnace route rebar conversion spread, widely understood as the margins derived from converting billets to rebars, narrowed to a seven-month low in major supplying regions like eastern, central and western India.

The monthly average spread stands close to a mere INR 2,400/t in Jul'21 specifically in the Durgapur and Raipur markets, down by 34% and 25% respectively.

Most of the rolling mills have slashed their capacity utilisation by around 50% in the mentioned markets and it is heard that a few standalone mills even opted for maintenance shutdown, struggling after incurring extreme losses.

Coming to other major regions like western and southern India, the spread in the Jalna market in Maharashtra was recorded at INR 3,748/t, down 22%, and in Chennai at INR 4,633/t, down by 12%, which is also one of the least falling markets in comparison to the other major locations.

Trade participants based in Chennai explained that production level has been impacted by around 20-30% due to sufficient stock lying at plants.

In monsoon, generally the conversion spread contracts amid less construction activities. So, the production levels usually get adjusted accordingly.

Further, rolling mills are trying to improve the conversion spread by limiting trade discounts as curtailed production and lessening raw material prices might improve their margins a bit.

Outlook

August spreads may slightly recover as construction activities are resuming in most of the regions for project segments. Retailers are thus hopeful material lifting may improve this month against the previous, trade channels told SteelMint.