India steel index falls to 4-month low in lacklustre market. What to expect in short term?
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- Chinese HRC imports latest worry for flats
- Dull demand, elections loom over longs
- Will trade-level prices dip further?
Morning Brief: The India Steel Composite Index continued its losing streak this week to close at a 4-month low of 152.20 points on 5 May, 2023. Similar levels were last seen on 6 January this year. The index closed with a 1.3% drop against 154.20 points seen in the previous week.
The India Flat Steel Composite Index dipped 0.23% w-o-w to 156.00 points (156.30 points) while the India Long Steel Index showed a far steeper fall of 2.23% to 148.60 points (152) this week.
Factors pulling down the index
Price cuts, imports, exports pressure flats
Trade segment prices slide: Mills reduced the list prices of hot rolled coils (HRCs) by INR 2,000-2,500/t in early May. Prices in the trade segment were already under pressure and have been falling steadily. For instance, on a monthly average basis, SteelMint's benchmark HRC assessment dropped to INR 59,900/t ($732/t) exy-Mumbai in April as against INR 60,300/t ($737/t) a month ago. This further dropped to INR 59,000/t ($721/t) on 2 May. On a w-o-w basis, from INR 61,000/t ($744/t) on 24 April, these fell to INR 60,500/t ($738/t) on 1 May. This slide weighed on the Composite Index.
Buyers adopted a cautious approach, sought cheaper material, and resorted to need-based buying. Moreover, the manufacturing index in India slowed down in April and the beginning of May looked equally sluggish amid a liquidity tightness.
Imports a serious worry now? Imports have been rearing their head for a few weeks now. But the latest alarming news for mills is that imported HRC offers to India from China dropped by $25/t this week to $620/t CFR as against $645/t CFR a week ago. A deal was concluded for 30,000-50,000 t at $620/t CFR for early-June shipment. A few weeks earlier, some cargoes from Japan and Vietnam were booked at $700/t CFR and $665/t CFR for May-early June delivery. These landed prices are cheaper than what even the trade segment is offering. Although the FTAs with Japan will negate any import tax, for the Chinese cargoes, there is 7.5% to be paid by the Indian buyers. But, despite the tax, these offers are viable.
China further drops export offers: The latest blow in a dull exports scenario is that China, on its return from the Labour Day holidays, further dropped HRC export offers by $30/t CFR. Prior to the holidays, its offers to the UAE were down $35/t while Japanese prices also hovered below $650/t CFR. Vietnam has avoided Indian material for many months now. Although Indian mills dropped their offers to the European Union, this market has gone quiet.
Price cuts, elections weigh on longs
Rebar list prices reduce: Mills reduced benchmark rebar list prices by around INR 2,000/t. Current offers are at INR 58,000-58,500/t ($710-716/t) landed Mumbai from the previous INR 60,000-60,500/t ($734-740/t). Trade segment prices also fell by INR 700/t ($9/t) to INR 58,100/t ($711/t), exy-Mumbai, as on 5 May. Lack of demand forced the price cuts.
Election dampener: With elections slated to take place in many states, sources said the expected project demand revival is still eluding. That apart, developers are waiting to see if prices fall further in a liquidity-starved market.
IF-route rebar prices fall: Induction furnace-route rebar prices fell by INR 1,500/t ($18/t) to INR 52,800/t ($646/t) exw-Mumbai as on 3 May against INR 54,300/t ($664/t) on 1 May. Prices fell amid limited demand for semi-finished (billets), and slow offtake in finished steel.
Outlook
There can be a further drop in prices in the trade segment in a knee-jerk reaction to the cut in list prices.
Moreover, exports are likely to remain subdued in the near term especially because of the signals emerging from China. Apart from the dropped export offers, domestic demand here is likely to remain weak in May amid a supply glut and not enough consumption, which may force production cuts.
In India, only two months are left to complete pre-monsoon procurement, which may start soon enough. But the elections may weigh on the domestic market.
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.
