India's HRC-rebar spread eases marginally but remains in reverse gear. Short term uncertain

• Rebars see higher decline on sustained demand drop
  
  
• HRC tags drop despite safeguard duty investigations
  
  
• HMPV can have dual impact on Indian steel market
  
  

Morning Brief: The HRC-rebar reverse spread, after hitting a 10-year-low in November, 2024, eased a little in the following month. Data maintained with BigMint reveals that, in December last year, the spread lessened by INR 400/t ($5t) to settle at INR 6,000/t ($70/t).

Data also reveals that rebars lost a little more at 3% m-o-m to settle at INR 52,900/t ($618/t). Benchmark hot rolled coils also fell m-o-m but a lesser 2.50% at INR 46,900/t ($548/t).

Usually, HRCs are sold at an INR 4,000-4,500/t ($47-53/t) premium to rebar. However, this trend stands reversed from April 2024 with August being a marginal exception.

Factors that impacted the spread in Dec'24

Rebar

BF rebar in free-fall in slow market: Blast furnace-level rebars were in a free-fall last month, declining for seven straight weeks, actually. Several factors colluded to keep the prices suppressed. These included lacklustre demand amid the pollution-related construction bans in northern India and Delhi NCR region, these two being large infrastructure development hubs of the country.

Secondly, with several states gearing up for elections, liquidity is becoming an issue since much of government funding is being diverted away from infra building towards welfare measures. Thirdly, with the calendar year ending, sales turned further sluggish amid a holiday mood. All the above factors led to inventory pile-ups.

IF rebars show mixed trends in fluctuating market: Induction furnace (IF) rebars, on the other hand, showed a mixed trend through the month. They began on a positive note, faltered, picked up in the third week to only fall back again amid fluctuating demand signals in a market gripped by liquidity crunch, year-end slackness in demand and inventory pile-ups.

Raw material prices fail to offer support: Raw materials also failed to offer support. The Odisha Fe62% fines index dipped 2% m-o-m to INR 5,250/t ($61/t) in December. Sponge iron (PDRI) from Raipur tripped 4% m-o-m to INR 25,552/t ($298/t) and 10% from October levels. Mandi scrap remained stable at INR 36,780/t ($430/t) while imported HMS slipped 2% at $384/t CFR Nhava Sheva.

HRC

Safeguard investigations fail to lift HRCs sharply: Benchmarked hot-rolled coils, on the other hand showed a more stable trend. These fell in the first fortnight w-o-w, remained stable and then showed a slight uptrend towards the year-end, buoyed by the safeguard duty investigation, which possibly helped to ease the reverse spread marginally. However, even this slight price uptick cut no ice in the market - buyers refused to accept the raised offers. They resorted to need-based buying to avoid incurring stock-holding expenses, since liquidity was an issue here too. Overall, the market remained saddled with inventory, offering little scope for any sharp hikes.

Exports lacklustre, imports downtrend: Indian mills refrained from making any offers in the export market while China's offers continued to be a source of bother, although these remained more or less range-bound m-o-m. The export market lost further momentum amid the Christmas and New Year holidays and the ongoing anti-dumping investigations from Europe into steel exports from four countries, including India.

Imports, meanwhile, have declined but continue to be a spot of bother. In December, around 366,700 t of bulk HRCs and plate imports are expected as against around 571,656 t in November, and 687,297 t in October.

Outlook

With mills having already raised rebar prices, there are expectations of a hike in flats' too, possibly against the end-December, 2024 levels.

However, the buzz is that the market may not be willing to absorb the hike amid continued lacklustre demand. "Mills may raise prices keeping in mind the ongoing safeguard duty investigations. But these may not get absorbed in the market," a source hinted.

Secondly, there are also hints that mills are holding on to HRC supplies to create an upward price pressure but it could not be confirmed by BigMint.

Thirdly, with the approaching Makar Sankranti festival, demand, and thus prices, may be further impacted. The Chennai market is expected to remain closed for almost 10 days due to Pongal.

Lastly, with the outbreak of the HMPV in China, markets are awaiting some impact with both anticipation and trepidation since it can swing both ways. Chinese steel exports can be impacted which spells good news for Indian mills. But, if the outbreak eventually leads to lockdowns then the steel market will again be in the doldrums.

Thus, the short term looks uncertain.