India steel index hurtles back to 10-week low. Liquidity squeeze stifles prices

• IF rebars struggle through north India smog
  
  
• Flats range-bound, imports offer support
  
  
• Prices may be staring at a bleak December
  
  

Morning Brief: The India Steel Composite Index ricocheted back to a 10-week low on 29 November, 2024, closing a significant 1.7% down at 130.1 points. Notably, this is a level that the index was grovelling at in December 2020 as well, indicating that prices are hovering at four-year lows for months now.

The sub-indices too plunged w-o-w. Longs fell a deeper 2.28% to 133.1, a 10-week low. Rebars, wire rods, structures, all fell well over 1% w-o-w. Flats were down 1.71% to 126.1, again a four-year low. But, w-o-w, these had a slight buffer in hot rolled coils which eroded less than 1% but plates flattened out by -1.53%.

Factors that impacted the index last week

Tight liquidity, smog keep BF rebar in squeeze: Trade-level blast furnace (BF) rebar prices edged down w-o-w by INR 100/t ($1/t) to INR 54,000/t ($638/t) exy-Mumbai, minus the 18% GST. A double whammy of weak demand and liquidity tightness is keeping mills on the backfoot. In fact, in a chicken-and-egg scenario, weak demand is leading to funding issues, creating the liquidity crunch.

Project segment prices slid down by INR 500/t ($6/t) to INR 53,000-54,000/t ($627-638/t). The construction ban amid the rising poor air quality in northern India is snuffing out consumption of construction sector longs demand. In fact, last week, Delhi authorities closed schools, halted construction, and banned entry of trucks carrying non-essentials as air pollution rose to the severe category.

IF prices plunge amid poor demand: A key reason behind the slide in the Composite Index last week lay in the INR 1,100/t ($13/t) w-o-w plunge in the induction furnace (IF)-grade rebar prices. The northern smog has created a huge demand barrier, aggravating the liquidity challenge. As a result, inventory idling time continued to linger at 12-15 days while the price gap between BF-IF prices expanded to INR 7,000-7,500/t ($83-87/t) while sellers tried to offload material at reduced prices and deep discounts. "Buyers are fewer. Liquidity is an issue. List price announcements from BF mills is also awaited," a source said.

Key flat steels range-bound: BigMint's assessment for trade-level HRCs and CRCs showed prices were stable w-o-w at INR 48,000/t ($567/t) and INR 54,200/t ($641/t). HRCs remained firm w-o-w across other regions too, hovering at INR 47,500-49,900/t ($562-590/t) with CRCs also range-bound at INR 53,500-58500/t ($632-692/t).

However, here too liquidity was an issue because of the tardy inventory roll-over time and delayed payment recovery challenges. Some BF-route mills sold mid-month at reduced prices to deplete inventories.

The previous list price hikes of BF mills failed to get absorbed in the market. Consequently, the subsequent increases in the trade segment did not find much support either.

Meanwhile, ebbing imports offered some support to flats. India's cumulative import volume stood in November may hover at around 535,000 t, lower from 687,297 t in October and 776,835 t in September.

Exports weak in dull ME, EU markets: Indian mills did not offer in the Middle East (ME) market last week because of two reasons. One was the competitive Chinese offers, which hovered at $525/t CFR UAE. Although Indian mills did not actively offer to this market, their last heard quotes were at a higher $560/t CFR. Secondly, the ME region was slow amid the upcoming National Day holidays over 30 November - 3 December.

India's offers to Europe continued to remain stable at $590-595/t CFR Antwerp. India utilised a mere 8% of its allocated HRC quota for Europe as of 22 November amid muted demand and stable local prices in this geography.

Outlook

The market is expected to usher in December on a sluggish note amid some year-ender apathy. The much-awaited post-Diwali rebound remained elusive, disappointing sellers. Northern India's haze will pose a huge challenge to construction steel demand, especially since the Delhi region is a major infra development hub.

In exports, early 2025 may continue to remain subdued amid Christmas-New Year holidays across western and Southeast Asian geographies.