India steel index hits two-year low. Prices may remain range-bound in short term

• Both long, flat steel prices stay range-bound
  
  
• Liquidity crunch, construction ban impact longs market
  
  
• Prices may remain range-bound ahead of Union Budget
  
  

Morning Brief: The India Steel Composite Index fell to a two-year low for the week ending 27 January, 2024. Similar levels were last seen on 22 January, 2022. The index last week saw a further dip of 0.2% to 139.60 points.

It has been consistently falling for 16 weeks in a row to hit the two-year low last Saturday.

Factors that influenced the index last week

Looking at the immediate past, both longs and flats prices remained range-bound but some challenges have been persisting for the last few months.

BF rebar range-bound amid dull demand: In the blast furnace rebar segment, some mills announced an increase in prices by INR 1,000-1,500/tonne (t). But trade-level prices remained range-bound.

SteelMint's weekly assessment for rebars for the trade segment dropped a marginal INR 100/t w-o-w to INR 51,400/t, exy-Mumbai, excluding GST at 18%.

Overall demand was lacklustre not only last week but has been for quite a few months due to uncertainty in market dynamics and price directions.

Prices are at a 4-5month low in both BF and IF rebars. BF-route prices have fallen 10% in January since September 2023 levels of INR 57,400/t ($691/t) whereas IF prices declined 6% in this period.

As a result, the gap between BF and IF prices had widened to almost INR 7,000/t in November 2023. This put pressure on BF-route rebar suppliers. The gap narrowed to INR 3,100/t in January.

Induction rebars range-bound amid liquidity issues: Induction furnace rebar prices remained range-bound as demand was dull amid a liquidity crunch and fluctuation in prices of raw materials like billets and sponge iron.

Offers were stable w-o-w as list prices remained range-bound but discounts varied in accordance with market sentiments. Retail sales were dull while projects did nominal purchases.

Currently, the monthly average price of IF rebar is at INR 48,700/t ($586/t) exw-Mumbai. W-o-w, prices fluctuated by INR 100-500/t ($1-6/t) but remained stable in a few markets.

Longs face several challenges: Overall, prices in the longs segment have been following the composite index, falling steadily since October 2023 amid a liquidity crunch, festivals and the ban on construction in northern India. The liquidity crunch has been plaguing the market as polls were held in a few states last year and the general elections are approaching.

Secondly, with the onset of winter from November last year, the government banned non-essential construction activity in the Delhi-NCR region -- the main consumption hub of rebar in northern India. This has taken a toll on rebar demand.

Third, prices of two key raw materials for the IF segment - sponge iron and billets - have been fluctuating consistently, keeping buyers uncertain about price directions and bulk purchases.

Lastly, the third quarter and early 2024 were marked by several festivities which kept trading dull.

Thus, cumulatively, for the past many months, buyers have been resorting to need-based purchases.

Trade-level flats prices steady in sluggish market: In flats, hot-rolled (HR) and cold rolled (CR) coil prices at the trade level held steady. As in longs, in flats too, overall trading remained sluggish, as cautious buyers opted for need-based purchases at lower price points. As a result, benchmark HRC prices edged down a negligible INR 100/t ($1/t) to INR 54,000/t ($649/t) last week while CRC prices fell by INR 200/t ($2/t) to INR 61,700/t ($741/t).

Increased supply impacts prices: Additional supplies in flats have been injected into the market, influencing prices to remain cautiously stable. NMDC has been producing around 100,000 t of hot metal and around 60,000 t of HRCs from its newly-operational Nagarnar Integrated Steel Plant and selling these at highly competitive prices for some time now in the trade segment. The additional supply is also leading to inventory build-up as demand is dull at present.

Dull export demand keeps offers flat: With export prices range-bound, domestic flats were also under pressure. The BigMint HRC export index tracking Vietnam and Middle East markets remained static at $600/t FOB east coast, India after rising a tad some time back. Offers to the Middle East were steady at $635-640/t amid a further drop in Chinese offers to this region. Demand from Vietnam was weak with the approaching Lunar holidays, keeping offers range-bound at $615-620/t CFR amid no firm offers. EU market was dull as buyers stayed away due to rising production and raw material costs.

Import volumes pressure prices: Another factor that has kept domestic mills worried is imports. Import volumes of bulk HRCs and plates till the third week of January played catch-up with December volumes, at 0.47 million tonnes (mnt) although no fresh bookings were heard of, for January-February. January saw landing of previous bookings.

Outlook

Prices are likely to stay range-bound in the short term, ahead of the Union Budget for 2024-25, to be placed on 1 February. At best, fluctuations of around INR 1,000/t may be expected.

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.