India steel index flat w-o-w; flats look bullish, longs still bearish

• Maintenance schedules reduce supplies, encourage trade-level price hikes in flats
  
  
• Export offers stay range-bound amid global price uptick
  
  
• Export allocations may remain tight for some more time
  
  

Morning Brief: Market participants breathed slightly easy last week as the India Steel Composite Index remained almost flat for the week ended 28 July, 2023. W-o-w, the index dropped a negligible 0.1% to close at 140.30 points. The previous week's closing had been at 140.40.

It was even more comforting that the India Flat Steel Composite Index gained for the second week in a row to close at 146.90 points (146.40). Even though the increase was negligible, the very fact that it was in positive territory brought relief to market players. The India Long Steel Composite index dipped a slight 0.45% to end the week at 134 points (134.60). But it is heartening that the fall has been gradually easing for two consecutive weeks.

Factors that influenced the index last week

Flats

Maintenance encourages increase in trade-level tags: A key reason for flats performing better w-o-w is the maintenance downtime opted for by mills. They usually do so in the monsoon, it being a dull demand period. However, the temporary shutdown leads to a disruption in supply and creates a semblance of a shortage. Keeping this factor in mind, the trade segment upped hot rolled (HR) and cold rolled (CR) coil prices by INR 200-500/t ($2-6/t) last week. However, other flat products remained range-bound. Post-the INR 200/t hike, HRC prices rested at INR 55,500-56,500/t ($677-689/t). CRCs rose INR 300/t to INR 59,500-60,500/t ($726-738/t).

The buzz is that domestic demand is good, easing pressure off the sellers and manufacturers.

Mills hold back export offers amid lesser allocations: In a natural progression from the planned maintenance schedules, mills have lesser volumes to allot for exports. As a result, they held back their offers for the overseas markets last week, keeping prices stable w-o-w. They did not offer to the Middle East market while Europe continued to remain quiet, helping mills to keep their offers flat.

Global prices show uptick: Imported Chinese HRC offers into Vietnam rose $10-15/t last week to $585-590/t CFR amid improved domestic demand in this Southeast Asian market. Vietnam's domestic mills, sensing the increased appetite, also increased offers. Hoa Phat and Formosa Ha Tinh sold out their domestic HRC allocations for September on strong demand despite hiking prices by $10-15/t m-o-m. That apart, the Chinese steel market showed some recovery following recent production cuts and news of possible policy injection by the National Development and Reform Commission (NDRC). As a result, Baosteel, raised HRC prices by $14/t for August sales.

This global uptick in HRCs also helped Indian mills to keep their export offers firm rather than dropping them.

Longs

IF rebars slide, drag down BF segment: Longs have not been as lucky as flats. Trade-level blast furnace (BF)-route rebars lost another INR 500/t ($6/t) to close at INR 50,500/t ($614/t) ex-Mumbai, the 25^th consecutive fall. The induction furnace route material also fell by INR 300/t w-o-w to INR 46,000-46,500/t, ex-Mumbai. The slide in IF material forced tier-1 mills to reduce their offers in a market they command a minority 30-35%.

But there were not many buyers even at these price tags because the rainy season is keeping projects on a leash. Plus, buyers are awaiting August announcements from mills for better price clarity.

Longs exports weak: Longs and semis exports continue to remain weak because of a few factors. One, these are primarily sold to Asia, a market already dominated by China, Malaysia, Gulf countries and Indonesia. Two, demand for longs is globally still subdued as rising interest rates have hit housing and construction demand. Three, Indian rebar, wire rods and semis (billets) are almost $40-45/t higher on CIF basis and hence there are no takers in Asia currently.

Outlook

The supply constraints being felt in July because of plant maintenance issues are likely to normalise in August. However, as per some reports, the production loss faced by two tier-1 mills in July totalled around 200,000-300,000 t and this will impact August-September shipments. Under such circumstances, export allocations will continue to remain squeezed.

But, the market buzz is, domestic demand for flats is growing and mills are bullish on the growth in segments like automotive, ancillaries, white goods, galvanisers, and pipes & tubes, in the medium term. Hence, they will continue to have limited allocations for exports and may increase offers in the overseas markets, going forward.

Longs, meanwhile, may have to wait out the rains to see a demand uptick.

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