India Steel Composite Index drops amid soft market conditions in pre-festive season

• Long steel prices fall on festive demand lull, declining scrap prices
  
  
• Higher domestic HRC supplies put pressure on prices
  
  
• Chinese production and exports, geopolitical factors weigh on steel prices
  
  

Morning Brief: SteelMint's India Steel Composite Index for the week ended 21 October, 2023 was assessed lower at 147.5 points compared with 148.7 points in the week-ago period. The index declined by 0.8% w-o-w.

Both the sub-indices were in the red this week, hinting at lacklustre market sentiment. The 0.7% decline in the Flat Steel Composite Index to 152.5 points from 153.5 was slower compared to the Steel Long Composite Index, which dropped a steeper 1% w-o-w to 142.7 points from 144 points.

Longs

1. Trade-level rebar prices drop: Trade-level prices of blast furnace (BF) route rebar have dropped amid weak buying interest in the domestic market. Prices in the trade segment declined by INR 800/t ($10/t) w-o-w to INR 57,200/t ($688/t) exy-Mumbai on 20 October. End-users, particularly in the projects segment, are engaged only in need-based buying amid limited availability of labour during the festive season impacting construction activity. Average prices of IF rebar dropped INR 600/t ($7/t) w-o-w to INR 50,700/t ($610/t) exw-Mumbai on subdued demand, slow trade momentum, and drop in billet and sponge iron prices. Sources informed that volatility in prices and liquidity issues have slowed down the inventory cycle since the beginning of October.

2. Impact of West Asia conflict: The Israel-Hamas conflict has affected Turkiye's steel exports to Israel. Israel is predominantly dependent on imports, buying around 2 mnt of finished steel annually from overseas, and most of it from Turkiye. The adverse effect on Turkish long steel exports has cast a shadow on global ferrous scrap prices, as Turkiye is the leading seaborne buyer and price-setter. SteelMint data shows imported melting scrap prices into Turkiye have fallen to $355/t CFR from $374/t CFR on 2 October. Naturally, this weighs on global long steel prices. Declining scrap prices are exerting pressure on domestic sponge iron prices in India, thereby adversely impacting rebar prices.

Flats

a) HRC prices down in traders' market: Trade-level hot rolled (HR) coil prices have edged down by around INR 400-600/t ($5-7/t) in key markets. The main reason seems to be an increase in domestic supplies. India's flat steel exports declined by over 40% m-o-m in August to 0.34 mnt, while September volumes were still lower. Even as domestic demand remains firm, global demand is subdued and offers from China are more competitive. Domestic steel prices in the EU are lower than imports. Mills are holding back export offers to Southeast Asia and the Middle East for over a month on higher domestic realisations. So, supplies to the domestic market have increased.

Again, the primary mills increased list prices in October but lower landed prices of HRC from China and South Korea compared with domestic prices resulted in imports which pressured domestic trade prices even as they increased supplies in the market. Provisional data with SteelMint show that steel imports in the first 16 days of October already surpassed total volumes in September to reach around 280,000 t, although still much lower than August. Delivery of some cargoes needs to be preponed due to mandatory BIS licensing norms for all imports recently reiterated by the Steel Ministry. So, domestic supplies via imports may rise in the short term even though imports will drop eventually.

Outlook

The outlook on domestic steel prices is mixed and prices are likely to be influenced by global movements in the industry. China has reduced steel production by 5% m-o-m in September to around 82 mnt. As the winter production cuts set in, it is expected that Chinese crude steel production should be lower y-o-y in Q4CY23. So, Chinese steel exports will also drop in Q4 providing some support to global and domestic steel prices.

However, the Israeli-Palestinian conflict may escalate further and encompass other neighbouring nations and, at the same time, impact energy and commodities markets. So, geopolitical risks continue to weigh on the steel market and prices.

The India Steel Composite Index is assessed on a weekly basis, every Friday at 18:30 IST, as per the weighted average prices based on manufacturing capacity and production.

SteelMint considers the Composite Index with the base year being 3 January 2020 (financial year 2019-2020) and the base value as 100. The Composite Index does not give the absolute price but a trend of the market. The Indian steel industry is broadly classified into the BF-BOF and the electric/induction furnace routes. Keeping this broad classification in view, SteelMint proposes to release the Composite Index by considering both production routes by manufacturing capacity and the production-weighted method to compute the index for India.