India steel index hits 6-month high. But, fears loom over likely imports rebound

• Maintenance schedules reduce supplies of long, flats
  
  
• Raw material costlier amid firmer finished prices
  
  
• China factor, BIS licence renewals may revive imports
  
  

Morning Brief: The BigMint India Steel Composite Index has been rising for four week weeks in a row. On 11 May 2024, it closed at a six-month high of 146.1 points (145.1), up 0.7% w-o-w. The last time such levels were seen was on 3 November, 2023.

Both the longs and flats indices rose by nearly 1% w-o-w.

Factors helping the index rally

Lower stocks further boost BF rebar prices: Trade-level blast furnace (BF)-route rebar prices increased w-o-w by INR 400-1,200/tonne ($5-14/t) across markets as leading primary mills announced yet another interim hike of INR 500/t ($6/t) during the week. Post-hike, trade-level BF rebars increased by INR 1,000/t ($12/t) w-o-w to INR 58,800/t ($704/t) exy-Mumbai, exclusive of 18% GST.

In the projects space, prices hovered at around INR 57,500-58,000/t ($688-694/t) FOR Mumbai, up INR 2,000-2,500/t ($24-30/t) over the last fortnight and by INR 500/t ($6/t) w-o-w.

Lower inventories and shortages in some sizes allowed mills to go for the hikes, although demand continued to remain slow. Lastly, induction furnace (IF) rebar prices also increased, keeping BF material supported. The former command the lion's share of 65-70% of India's rebar market.

In fact, production cuts and maintenance shutdowns effected over recent months have led to inventory depletion which, in turn, has allowed mills to repeatedly opt for interim hikes these past couple of months.

IF rebar sees mixed trend: IF rebar prices increased by INR 1,200/t ($14/t) w-o-w to INR 53,300/t ($638/t) exw-Mumbai. However, market sentiments were mixed. Spot trade was minimal due to the daily fluctuations in billet and sponge iron prices. Buyers opted to wait and watch before procuring in bulk at the upper price levels. Such a scenario compelled sellers to reduce offers to lift sales.

Trade-level flats head north amid shutdowns: In flats too, the maintenance schedules allowed mills to hike prices. As a result, last week too, prices of hot rolled (HR) and cold rolled (CR) coils from tier-I mills were increased by INR 1,500/t ($18/t) for May 2024 sales. Post-hike, benchmark HRCs were at INR 54,500-55,000/t ($652-658/t) exy-Mumbai and CRCs at INR 59,800-61,500/t ($716-736/t).

Tightening of domestic supplies due to maintenance along with lower imports and surging raw material prices helped to keep prices propped up even though end-users resorted to need-based procurements.

HRC export market dull: Indian HRC export offers to Southeast Asia, the Middle East (ME) as well as Europe continued to remain on hold for yet another week as mills were more focused on the higher realisations in the domestic market, post-price hikes. Overall, exports remained a damp squib.

Raw material prices rally: Raw material prices showed a sharp upward trend last week because of the rebound seen in finished prices. Prices of silico manganese, exw-Raipur, shot up almost 33% so far in May to average INR 95,000/t ($1,137/) compared to INR 72,000/t ($862/t) in April, driven by higher raw material costs and robust export demand amid disruptions in Australian supplies. Australian premium hard coking coal prices edged up by $3/t w-o-w to $243/t FOB.

For induction furnace mills in particular, sponge iron (PDRI lumps FeM 80%) exw-Raipur, rose 3% w-o-w to INR 30,050/t ($360/t) while the BigMint billet index, exw-Raipur, upped over 2% w-o-w to INR 45,090/t ($540/t).

On a m-o-m basis, billets in May are already up well over 4% and sponge iron, by 2%. Pellet prices, DAP Raipur (Fe63%), have increased 7% in May compared to April.

Outlook

Two concerns, however, seem to be raising their head. One is the fear of imports revival in the foreseeable future. It may be noted that Vietnamese steel major Formosa's BIS licence was renewed recently. This is a worrisome factor for Indian mills as it raises concerns over imports inroads yet again. The apprehension is that other mills from FTA countries and China may also get a renewal of their licences for exporting to India. It may be recalled, the Indian government had stopped renewing BIS licences in the second half of last year as a non-tariff barrier to reduce ballooning imports which had hit domestic mills hard.

The fears are not unfounded as some metallics imports have already started. BigMint recently heard of import bookings of around 100,000 t of pig iron as domestic prices of the same are trending higher.

Secondly, the China factor is looming large. BigMint learnt that reducing inventory is the top-most priority for Chinese mills now, as these have currently hit historically high levels. As per reports, the inventory is higher by 4% compared to the same period in 2020 and 2021. Chinese domestic apparent steel consumption is also significantly lower compared to that seen in these two years and thus there is ample scope for reducing inventory, and how? Since the realty sector is still struggling noticeably, mills would look at exports very aggressively - a factor that will not go down well with Indian mills. The latter would be impacted in two ways if Chinese mills start aggressively dumping steel cheap across the globe. One would be the reduced export offers across geographies which may make overseas sales unviable for Indian mills. Two, India, will again become a happy hunting ground for Chinese imports if the landed prices are lower than domestic.

Since inventory and profits have a converse relationship, the market buzz is that Chinese exports this year may even exceed last year's 90 mnt.

Thus, Indian mills may need to navigate a complex terrain in the short to medium term in terms of prices. The positive is that many expect demand to rebound post-elections and the rainy season.

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.