India: Rebar-HRC spread sustains in H2, Omicron keeps outlook uncertain

The HRC-rebar spread is back at around Apr'21 levels of over INR 10,150/tonne (t) ($137/t), after dropping from around INR 13,100/t ($176/t) in Oct'21. In fact, the spread has sustained at over INR 10,000/t since Apr'21, culminating at almost INR 16,000/t ($215/t) in Jun'21, which has been at an average of INR 1,088/t ($15/t) since Jan'20-Mar'21, SteelMint's data shows.

Why has the spread sustained?

Rebar performs better: Tracking the data since Oct'21 reveals that it is mainly the blast furnace route rebar which has gained more in prices compared to hot rolled coils (HRCs). This, in turn, kept the spread at a wide range of INR 10,200-10,300/t ($137-138/t) in Nov-Dec'21 and INR 13,100/t in Oct'21.

For instance, rebar rose INR 5,725/t ($77/t) in Oct'21 m-o-m against HRC's lesser gain of INR 5,280/t ($71/t). It was up INR 3,100/t ($42/t) in Nov'21 while HRC prices remained stable m-o-m. In Dec'21, rebar prices declined by INR 5,600/t ($75/t) while the HRC price drop was by INR 5,500/t ($74/t).

Rebar prices performed comparatively better because secondary sector rebar did not have room to correct downwards on high sponge iron prices. Sponge, a raw material, had been pushed up by high coal costs. Scrap supply was also tight which allowed prices to remain firm in domestic and overseas markets. These sentiments kept induction route rebar firm and allowed BF-route rebar to remain at INR 55,000-61,000/t levels over Oct-Dec'21. Traditionally, BF-route rebar stays higher than IF-route by INR 3,000-4,000/t ($4054/t).

Infrastructure demand good: At present, there is demand from the government sector because project awarding has been happening. As per a media report, a record high INR 1.30 trillion worth of projects were awarded in CY'21 whereas the current year has seen around INR 80,000 crore. This subdued trend could be due to the omicron surge. However, it is expected that the government's sustained infrastructure focus will keep demand buoyant, going forward. As per reports, the Union Budget is expected to increase the allocations of the Ministry of Road Transport and Highways (MoRTH) to a record INR 1.5 trillion to give a fillip to road construction. The project segment buys in bulk and thus gets concessional rates.

HRC prices subdued on dull demand: On the other hand, HRC prices remained stable and then dropped in Nov-Dec'21 due to two key factors: 1) The chip shortage, which dented automotive demand for flat products; 2) The outbreak of the third wave, which has eroded domestic demand. Retail level sentiments are subdued at present since stockists want to avoid investing in fresh inventory due to lack of material off-take, brought on by the omicron surge.

Outlook

Sources inform that if there are lockdowns then construction may see short-term stalling, which can upset demand for a limited period.