India's HRC-rebar spread reverse-swings to 10-year low in Nov as flats bat on sticky wicket. Know why?

• Nov'24 HRC prices grovel at four-year lows
  
  
• Rebar marginally up amid supply tightness
  
  
• Short-to-medium term may show mixed trend
  
  

Morning Brief: HRC-rebar prices and their spread in November gave a fair indication of the present challenging environment the Indian steel market is operating in. Data tracked by BigMint since May 2014 shows, the HRC-rebar spread reversed to a 10-year-low in November 2024. Usually, HRCs are sold at an INR 4,000-4,500/t ($47-53/t) premium to rebars.

So far into this fiscal (April-November, 2024-25), rebar prices have dipped over 2% to INR 54,075/t ($638/t) compared to INR 55,300/t ($653/t) in the same eight months last fiscal. HRCs, on the other hand, fell a far deeper 11% to INR 50,950/t ($602/t) from INR 56,988/t ($673/t) in this period, contributing heavily to the record spread reversal last month.

As a consequence of this steady erosion in value, BigMint's data shows, in November 2024, the spread reversed to a 10-year low of -INR 6,400/tonne ($76/t) with trade-level benchmark hot rolled coil prices scraping at a four-year low of INR 48,100/t ($568/t), although m-o-m, these remained almost flat, dipping by a mere INR 100/t ($1/t).

The benchmarked blast furnace-route rebar was on a negligibly stronger wicket, being up a mere 1.30% m-o-m at INR 54,500/t ($643/t) last month against INR 53,800/t ($635/t) in October, which was a five-month high.

What factors impacted the spread in Nov'24?

Tight supplies keeps rebar propped up: Supply tightness kept rebar prices bolstered to an extent. Rashtriya Ispat Nigam Limited resumed its second blast furnace from November. But, prior to that, it was operating with a single BF for the last six months which kept longs supplies on a tight leash. That apart, a large PSU mill opted for maintenance shutdown last month, further denting supplies. This scenario led to a 15-20% m-o-m decline in rebar inventories in early-November.

Pre Diwali restocking peps up prices: Some pre-Diwali restocking encouraged mills to keep rebar and trade-level HRC-CRC prices propped up in early November. BF-grade rebars spurted up by INR 1,000/t ($12/t), and flats by INR 800-1,000/t ($9-12/t). However, the pre-festive rush failed to sustain its momentum and markets resisted this hike. As a result, by month-end, rebars fell back a little again and HRC remained stable w-o-w. The much-anticipated post-Diwali demand rebound failed to kick in, swiftly swinging the mood back to a wintry bleakness.

Liquidity crunch leads to inventory pile-up: The Maharashtra election and the protracted dull demand scenario started taking their toll on funding channels. While a substantial portion of funds was diverted towards the polls, the extended period of subdued demand witnessed by end-users (auto, renewable energy etc) made them wary of procurements. They sustained the need-based purchasing trend in both longs and flats. This translated into scant money flow into the steel trade, piling up inventories, which impacted production. While tier-1 mill have undertaken intermittent maintenance shutdowns, IF mills have been operating at around 80% capacity utilisation.

Exports, imports down: An extended lull in demand from Europe, competitive pricing from China and anti-dumping investigations are factors colluding to keep HRC exports dull for months now. Mills resumed offers in late October but the export index remained stuck at $535/t FOB while offers to the Middle East were also static at $560/t CFR.

On the other hand, slowing imports offered some support to flats. India's cumulative import volume in November may hover at around 535,000 t, lower from 687,297 t in October and 776,835 t in September.

Outlook

The short-to-medium term outlook is mixed. Smog and consequent low infrastructure activity may keep longs demand further suppressed, especially in the Delhi region, which is a major infra-construction hub.

On the other hand, Maharashtra, a major steel-consuming region, may witness political stability with the elections over and a new government being sworn in. Many feel, this state will now see renewed infra activity and project awarding which may bring good cheer to mills.

Prices too may see some volatility in tandem with the above factors.