India steel index falters for 2nd straight week; Nov smog may keep prices hazy in short term

• Flats stumble amid limited trades, liquidity crunch
  
  
• Limited demand dents BF rebar, IF fortunes mixed
  
  
• Raw material prices fail to prop up finished steels
  
  

Morning Brief: The Indian steel industry's woes failed to ease this week, as prices trended down for the second consecutive week in November. In tandem, the India Steel Composite Index registered a modest 0.4% w-o-w drop to 132.3 points on 22 November 2024, close to the 132.4 seen right at the beginning of this month. The index has plummeted for two weeks in a row, although the latest drop is softer than the previous week's 0.8%.

Both the long and flat steel segments were down. The former eroded by 0.4% w-o-w to 136.1 points, while the latter by 0.5% w-o-w to 128.3 points.

Among the longs categories, only rebar plunged, by a significant 0.9%. Conversely, marginal hikes in the wire rod and structure steel indices offered support. For flats, CRCs emerged as a point of worry, nose-diving by a sharp 1.5%. Meanwhile, the hot-rolled coil (HRC) index weakened by a slight 0.3%, and galvanised plates (GPs) and hot-rolled (HR) plates remained largely stable w-o-w.

The dip in the latest assessment means that the index has been in green only in the second week of November. Although winter typically signals peak operations for the Indian steel industry, overall demand remained tepid. Despondency has set in, with the index languishing in the 130s for over four months now, since July 2024.

Factors that impacted the index last week

Limited demand dents BF-rebar prices: Unease over limited demand dealt a blow to blast furnace (BF) rebar prices. In the trade segment, prices softened by up to INR 700/t ($8/t) w-o-w to INR 54,100/t ($641/t) exy-Mumbai, excluding 18% GST, on 19 November 2024.

However, in the project sector, prices remained stable w-o-w at around INR 53,500-54,500/t ($634-645/t) FOR Mumbai.

Elevated inventories cap IF-rebar trade: Induction furnace (IF) rebars, which enjoy a 65-70% share of the market, witnessed a slight hike of INR 200/t ($2/t) w-o-w to INR 47,800/t ($566/t) exw-Mumbai. The segment saw mixed trends throughout the week, due to a number of factors.

First, buyers had ample stock and were not in a rush to procure more material. As a result, need-based buying limited trade. Second, to tempt buyers, mills offered trade discounts, based on payment and delivery terms. This strategy ended up being somewhat successful, prompting a slight improvement in prices and trading activity in the latter half of the week, with regional variations.

HRC, CRC prices tumble on limited trades: Overall, HRC suppliers were in a bind this week, with HRC prices falling by INR 500/t ($6/t) w-o-w to INR 48,000-50,000/t ($569-596/t). First, HRC prices trended down on account of limited trades. The market was in a bear grip, with the possibility of a post-Diwali pick-up in demand still a remote reality. Second, a liquidity crunch, possibly due to a number of state elections, piled pressure on traders, who resorted to reducing offers to meet sales targets. Third, any attempt to raise offers was met with strong resistance, and ultimately, HRC suppliers found no outlet to improve margins.

The subdued sentiment in HRCs percolated down to the other segments. CRC prices eroded, by a higher INR 800/t ($9/t) to INR 55,000-58,500/t ($660-692/t) across various regions. It was difficult to push material, and aggressive selling tactics had to be adopted.

HRC imports offer glimmer of hope: India's cumulative import volume, based on BigMint's vessel line-up data, shows a declining trend. It stood at 368,530 t till 18 November 2024, with an additional 86,235 t expected by the month-end. October and September featured higher volumes, of 687,297 t and 776,835 t, respectively.

According to sources, customs clearance procedures have become stricter, with increased scrutiny on Bureau of Indian Standards (BIS) licences or no objection certificates (NOCs). This has delayed the arrival of imported material by 10-15 days and exacerbated the cost burden on importers.

A squeeze on imports would be a boon for the Indian steel industry, which has seen weak demand due to the substantial inflow of cheaper Chinese HRCs.

HRC exports remain inert w-o-w: HRC exports remained dispirited, with global demand down. First, Indian offers to the Middle East remained relatively stable w-o-w at $560/t CFR but faced intense competition from Chinese suppliers, whose offers were at $520-525/t CFR. China and the Middle East recently announced efforts to deepen economic ties, which could mount pressure on Indian exports to the latter. Second, European offers, range-bound w-o-w at $590-595/t, continued to be impacted by subdued regional demand.

Raw material prices fail to offer support: Critical raw materials, such as iron ore and coking coal, witnessed declines this week. BigMint's Odisha iron ore fines (Fe 62%) index dropped by INR 100/t ($1/t) w-o-w to INR 5,350/t ($63/t) ex-mines on 16 November 2024. Additionally, Australian premium hard coking coal (PHCC) prices edged down by $4/t w-o-w to $218/t CNF Paradip on 22 November 2024 from $222/t in the previous week.

Iron ore prices were under pressure this week, with steelmakers reluctant to accept higher offers. This culminated in an INR 300/t ($4/t) (weighted average) m-o-m drop in bids at the latest Odisha Mining Corporation (OMC) auction on 20 November. Offers were reduced subsequently, to remain competitive and stimulate demand.

Parallelly, other raw materials, such as pellets, also trended down. Pellet prices in Raipur, for example, fell by INR 800/t ($9/t) w-o-w to INR 9,900/t ($117/t).

Smog crises persist: A thick blanket of smog has surrounded north India and refuses to subside. With Stage IV of the Graded Response Action Plan (GRAP) in full swing, 3.4 million micro, small, and medium enterprises (MSMEs) in the region have been affected, according to estimates from the PHD Chamber of Commerce and Industry (PHDCCI), as per media reports. The halt in infrastructure activities is expected to hit operations in the steel industry as well.

Outlook

Limited demand may continue to hamper trade. A strong upward shift is unlikely in the near term, but optimism is present, given the possibility that import pressure might alleviate. This week, Union Steel Minister H D Kumaraswamy acknowledged the adverse impact of low-priced steel imports and assured the industry that the government is working on remedial measures.

Additionally, the China factor remains a bother. While the slew of macro-economic booster shots has lifted manufacturing activity to a certain degree, the level of improvement has been less than ideal.

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.