India steel index falls to 7-week low; longs continue to remain under pressure

• IF inventories rise, mills see steep correction
  
  
• Flat steels range-bound but challenges persist
  
  
• Production cuts may help mills restore balance
  
  

Morning Brief: The BigMint India Steel Composite Index dropped to a seven-week low last week. It has been hovering in negative territory for two consecutive weeks now and fell a further 1% to close the week ended 21 June, 2024 at 143.1 points (144.6).

The long steel index declined to an eight-week low and by almost 2% w-o-w which actually dragged down the mother index while flats remained somewhat range-bound.

Factors impacting the index last week

Trade-level BF rebar falls further: Longs continued to be under pressure last week. Trade-level blast furnace (BF)-route rebar prices fell further by INR 500/tonne ($6/t) to INR 57,300/t ($686/t), ex-Mumbai and minus the 18% GST. In the project segment, prices declined by another INR 500/t ($6/t) to hover at INR 56,000-57,000/t ($670-682/t).

The price fall can be attributed to two reasons - persistent market sluggishness as buyers showed disinterest and further decline in induction furnace prices w-o-w.

Despite the general elections being over, buyers are wary of procurements because of the monsoons and the impending Union Budget 2024-25, which is likely to be placed in Parliament in mid-July.

IF mills see steep price correction: Sentiments in the induction furnace (IF) segment continued to remain gloomy. Prices, witnessing a further round of correction, owing to weak buying interest, fell a steep INR 2,000/t ($24/t) w-o-w across regions. Benchmarked prices, ex-Mumbai, fell INR 1,600/t ($19/t) to INR 49,100/t ($588/t). A steady drop in offers for nearly three consecutive weeks has turned buyers cautious and put them in a wait-and-watch mode. They are now waiting for prices to bottom out before taking buying decisions. Suppliers continued to lower offers to clear rising inventory levels. However, trading activities still lack pace and inventory idling time has risen to 12-15 days at present.

In fact, billet prices have fallen to a three-month low, which is also exerting downward pressure on rebar.

With the current IF rebar price decline, the gap with BF material has widened to around INR 6,500/t ($78/t) against the previous month's INR 5,500-6,000/t ($66-72/t).

Flats stable but face several challenges: Flats on the other hand, were more on an even keel last week, unlike longs. Benchmarked trade-level hot rolled coil (HRC) prices remained stable w-o-w at INR 53,900/t ($645/t) and cold rolled coils, at INR 60,300/t ($722/t).

But flats are not without their challenges. Falling demand and sluggish sales have been the bane for quite some time now. Added to these, are import pressures, declining global steel prices, lack of overseas demand. Buyers are keen to procure at the lower end of the price spectrum, exerting a squeeze on margins.

Indian mills continue to hold export offers: The lack of activity sustained in the exports market for Indian mills for yet another week. Last week was particularly dull as market participants stayed away on account of the Eid holidays. Indian offers were on hold while Chinese quotes to both Middle East and Vietnam fell by $5/t.

Offers to Europe were also on hold, as domestic prices there firmed up slightly on the back of extension of safeguard measures for two years.

Outlook

If the ongoing scenario persists, IF mills may opt for production cuts in the near term. The monsoons, in any case, casts a shadow on steel demand every year. Flats may continue to face the current challenges.

In exports, an upward spurt, post-Eid, is expected. However, keeping the macro aspects in mind, demand may continue to remain dull for some more time. Summer is usually a quiet procurement period in Europe.

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.

BigMint 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, BigMint 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.