Analysis: SAIL books over 100,000 t pig iron, prices up by INR 7,000/t

• SAIL books over 100,000t pig iron through auctions during Apr-Aug (till 12th)
  
  
• Auction prices increased by up to INR 7,000/t since Apr'20
  
  
• Indian pig iron exports rise whereas production falls
  
  

India's state-owned steelmaker, Steel Authority of India Limited (SAIL) has sold over 100,000 t of pig iron in the merchant market between April and August (till 12th) through auctions, as per data maintained with SteelMint.

Strikingly, prices have risen steadily by over INR 7,000/t in the last two months. The current steel grade price for SAIL's auctions in Bokaro reported on Aug 12 was assessed at INR 28,850/t - a rise of INR 6,350/t from INR 22,500/t reported on Jun 24 by SteelMint.

Merchant pig iron production drops

SAIL's increasing merchant sales volume and rising prices could be explained by falling merchant supplies of pig iron. Lag in production compared to FY20 is certainly a factor: Indian Ministry of Steel data show that total production of pig iron in Apr-Jul'20 stands at 0.96 mn t compared to 2.13 mn t in the same period of last fiscal.

Although monthly merchant production has grown to 0.35 mn t in July from just 0.13 mn t in Apr'20 the pace of recovery is slow. Both Vedanta and Tata Metaliks have reported fall in Apr-Jul production mainly due to disruptions caused by COVID-19.
Additionally, with Neelachal Ispat Nigam Ltd. (NINL) not in the market, merchant supplies are remaining tight.

Indian pig iron exports rise
Likewise, exports of pig iron have increased substantially in the Apr-Jul period of FY21 compared to FY20. Exports to China alone during the period were 222,415 t as price realisations were better than the domestic market during the total lockdown.
While Apr-Jul FY20 exports stood at 79,470 t exports during the same period in the current fiscal have jumped to 457,682 t.

So, rising exports and scant merchant supplies have triggered increasing merchant sales by SAIL and with domestic demand on the upswing price realisations are turning in the favour of the PSU steel-maker.

Prices of private pig iron producers

Merchant pig iron prices, after falling below INR 24,000/t in June, are currently inching closer to INR 30,000/t. SteelMint's assessment on August 14 was INR 29,300 (ex-Durgapur) and it can be expected that merchant producers will increase prices by upwards of INR 7,000/t.

One critical factor supporting pig iron prices is the current rally in iron ore prices, with state-owned miner NMDC raising prices twice in a short span of time and Odisha-based merchant suppliers too hiking offers. Rise in prices results from supply tightness in the market as 14 out of the 19 auctioned mines in the latest Odisha auctions yet to start operations.

Although buyers are hesitant to take positions at these levels they are exploring alternatives like calcined petroleum coke (CPC). We see limited scope of further upside from current levels while the downside too happens to be capped.