India steel index falls further but flats inch up, near-term outlook mixed

• Maintenance schedules inject supply worries for flats
  
  
• Longs still feel monsoon demand dampness
  
  
• Lack of clarity on prices in near term
  
  

Morning Brief: The India Steel Composite Index continued its falling streak inlins the week ended 21 July, 2023. W-o-w, the index dropped 0.4% to 140.40 points, the lowest seen in the last 27 months as a similar level had been seen on 1 January, 2021. In the previous week, it had closed at 140.90.

However, market participants can take heart from the fact that the falling momentum slowed w-o-w because, the India Flat Steel Composite Index actually gained, even if slightly, at 146.40 points (146.10). However, the India Long Steel Composite index lost almost 1% to close at 134.60 points (135.90). This is a two-year low since such levels were last seen on 25 June, 2021 (134.30).

As has been happening for some time now, it is the long products slide that is pushing the index down w-o-w. Flats have been comparatively stable.

What factors pushed down the index last week?

Flats

Maintenance downtime fuels supply constraint speculation: Domestic trade-level benchmark flats prices inched up last week by INR 100-300/t, although actual levels remained flat w-o-w. This was because the major portion of the offers received were in the higher bracket compared to the preceding week. Hence, w-o-w, HRC prices remained flat at INR 55,000-56,000/t ($670-682/t) exy-Mumbai. CRC prices too were inert at INR 59,000-60,000/t ($719-731/t).

The uptick was sparked by speculation of supply tightness amid maintenance shutdowns being taken by tier-1 mills. The temporary shutdowns have been impelled by the slow domestic offtake. The monsoons are usually a period for mills' maintenance downtime.

Exports quiet: Indian mills held back hot rolled (CR) and cold rolled (CR) coils export offers amid maintenance shutdowns and certain technical issues. This allowed lesser inventory at their disposal for export allocations.

Moreover, most exporting geographies continue to remain quiet, supporting the maintenance move. Most buyers from the European Union are on summer holidays. That apart, the Middle East has also slowed down amid the ongoing Muharram month. In any case, this market has also been quiet for Indian exporters for some time now, preferring Chinese imports.

Longs

Rebar prices continue to fall: Trade-level blast furnace (BF)-route rebar prices fell further by INR 200/t ($2/t) to INR 51,000 ($622/t) due to the continued weakness in demand amid the rainy season. Prices have been on a decline for 24 straight weeks now. W-o-w, induction furnace rebars also dropped by INR 350/t ($4/t) to INR 46,700/t ($569/t). The continuous slide in IF-route rebars is due to tepid demand for finished steel. Naturally, tier-1 mills also need to lower their rebar prices correspondingly as the former commands the lion's share of the market.

Decline in raw material prices: A key reason, apart from the monsoon, for rebar and other longs being on a weak wicket is the decline in raw material prices. SteelMint's weekly Odisha fines index fell by INR 500/t on 22 July to INR 4,200/t. OMC cut the base price for its monthly fines auction by up to INR 750/t and lumps by INR 1,400-1,800/t. Scrap and sponge iron prices remained range-bound w-o-w, with minor fluctuations.

Outlook

It is overheard that supplies of finished flats will normalise soon, although this news could not be confirmed by SteelMint. But there is lack of clarity on prices in the near term. While some say flats tags will rise, others say these will remain range-bound till the first week of August. Meanwhile, the outlook on longs remains negative.

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.