India steel index dips w-o-w, but longs prices stay firm

• Tight iron ore, scrap and coal supplies keep secondary longs firm
  
  
• Flats still face exports pressure, mills to lower list prices
  
  
• Globally, high energy costs narrow longs-flats price gap
  
  

Morning Brief: After pulling back into the positive zone after 10 weeks, the SteelMint India Steel Composite Index again returned to negative territory on 1 July, 2022. It fell 0.3% w-o-w to 158.2 points.

The India Flat Steel Composite Index lost 0.88% w-o-w to end at 157.4 points but the India Long Steel Composite Index was up 0.32% to 159 points.

The trend in the current week was similar to that of the previous - longs performed better in terms of prices compared to flats.

Why are long steel prices faring better?
Long steel prices are essentially being driven up by the secondary sector (electric furnace mills), which comprises almost 60% of the market in India. Their prices were hiked on the back of the rise in raw materials costs.

1. Pellet prices up: Iron ore and pellet prices increased as the mills experienced a supply crunch. The scarcity stemmed from the increase in the auction base prices at OMC, the second-largest merchant miner in India. The price increase saw few takers for its iron ore, including the overwhelming 70% of its long-term customers. This poor offtake led to a supply crunch and an increase in pellet prices. The pellet index thus rose by INR 300/t to INR 8,000/t DAP Raipur a few days back.

2. Limited imported scrap bookings amid volatile currency: Buyers have been refraining from booking imported ferrous scrap cargoes against the backdrop of the volatile currency exchange rates. Most scrap cargoes booked are of US or Europe origin. With the long travel distance involved, buyers are wary that prices may change in-between origin and destination shores. As a result, there has been limited bookings, leading to supply crunch in scrap, a vital feed for induction furnace mills.

3. Imported coal costlier: Thermal coal prices, even though down m-o-m, are rising w-o-w. Sponge iron makers' strong demand for the RB3 grade from South Africa lifted its prices by INR 1,000/t w-o-w.

Even though coking coal prices dropped to their 9-month lows by June-end, it is the primary mills which will reap this benefit and that too when this low-priced material is used.

4. Limited downfall in longs: Meanwhile, pre-monsoon bookings allowed mills to hold on to their prices. The primary mills are yet to finalize their monthly re-bar contract for project supplies (last was settled at INR 60,000/t, delivered to the site). With narrowing price spreads between primary and secondary, large mills are unlikely to drop their drops in the first week of this month.

Flat steel prices still under pressure
Some primary mills have lowered their list prices of hot rolled coils (HRCs) by INR 5,000/t for July sales to INR 60,000/t ($760) Ex-Mumbai levels, as per information available.

Incidentally, flat steel prices are correcting more sharply across the world, narrowing the gap with longs in the process.

Longs are holding firm, despite subdued demand globally, because of the energy cost push which has raised the cost of production.

Globally, long products are predominantly manufactured through the highly power-intensive electric arc/induction furnace routes, whereas flats are mainly manufactured through blast furnaces.

1. Exports impasse continues: Exports are still weak, with not many deals reported this week, except for one parcel of HRCs to Vietnam at $660-670/t CFR although it could not be confirmed.

2. Production cuts intensify: More mills are planning maintenance shutdowns in July in the face of the export stalemate which is putting flats further on a sticky wicket. SteelMint's estimate is that production may fall by 10-15% in the current month.

Outlook
There is scope of further price corrections with flats expected to drop more compared to longs. Indian mills have booked Russian coking coal, for delivery in August, at prices lower than Australian or other origins'. This factor would lower production costs for tier 1 mills and further strengthen the case for price cuts, going forward.

The India Steel Composite Index
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. For details click to view the methodology document.