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India steel index in negative zone for fifth week. Factors to watch out for

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15 May 2023, 09:44 IST
India steel index in negative zone for fifth week. Factors to watch out for

  • Weak demand still plagues flats & longs

  • Falling raw materials prices fail to support finished products

  • Imported scrap may be an issue, impact prices

Morning Brief: The India Steel Composite Index dipped 0.4% w-o-w to close at 151.6 points on 12 May, 2023- its fifth week in negative zone. The index had closed a week back at 152.20 points.

The India Long Steel Index fell 0.1% to 148.50 points (148.60) this week. The India Flat Steel Composite Index dipped 0.6% w-o-w to 154.7 points (156 points).

A slight uptick in prices towards the close of the week lifted sentiments slightly and cushioned the fall a little.

 India steel index in negative zone for fifth week. Factors to watch out for

Factors keeping the index down

a. Flats hit by low global prices, cheap imports

India steel index in negative zone for fifth week. Factors to watch out for

1. Trade-level prices range-bound: Domestic trade-level prices remained range-bound as buyers resorted to only need-based procurement in the hope that prices would decline further. That apart, global hot rolled coil offers have been declining since early May which also pressured domestic prices.

2. Export offers fall steeply: The Indian HRC export index fell to a five-month low or by $50/tonne (t) in the last assessment on 9 May, indicating the exports scenario is still in the doldrums.

Exporters lowered offers for HRCS to the Middle East by $28/t w-o-w to $632/t CFR. A deal was closed at $630-635/t CFR last weekend. This was at par with offers from China to the UAE which remained stable at $620-630/t CFR w-o-w.

3. Global prices drop: Global HRC prices showed a sharp drop. The world's largest steelmaker, China's Baosteel lowered domestic HRC offers by $29/t for June sales. The cut was initiated against the backdrop of subdued domestic demand and declining global HRC prices. That apart, China's Labour day holidays had quietened the market, forcing the price cuts.

4. Imports still a worry: Imported HRC offers from China dropped $10/t w-o-w to $610/t CFR India for July shipments. However, no new bookings were heard amid the price volatility.

Earlier, a deal for Chinese-origin HRCs was concluded at $620/t CFR India, for delivery in end-May or early June. The landed cost of HRC imports has dropped to around INR 56,200/t ($685/t) exy-Mumbai. In early April, cargoes from Japan had been booked at around $700/t CFR, followed by a deal closed at $665/t CFR with a Vietnamese mill towards end-April.

b. Easing raw material prices fail to support longs

India steel index in negative zone for fifth week. Factors to watch out for

1. Weak demand persists but prices rise: Although demand is weak, prices did increase over the last couple of days essentially because of the production cuts being initiated, which allowed longs prices to fall a little less than flats. While the secondary mills had been calibrating their production amid squeezed margins, it is easier said than done for the primary mills. However, sources informed that pellet producers in the eastern part of India have already initiated production cuts on the back of tepid demand. They have either gone into maintenance or reduced production which increased finished prices a bit lately.

2. BF-route rebar prices fall: Mills seem to be under pressure, although there is a slight improvement in demand from projects after mills lowered their offers. Prices fell by INR 700/t ($9/t) w-o-w to INR 57,400/t ($699/t), exy-Mumbai. Similar price levels were last seen on 30 December, 2022. Easing iron ore and coking coal prices are not supporting rebar at present.

Outlook

With demand remaining subdued for an extended period, there is scope for raw material prices to further correct. There is increased availability of coal for the non-power sector with a five-fold increase in Coal India's auction volumes. In a cascading effect, the cost burden on the smaller mills, and sponge iron makers has eased which may translate into even lower finished prices in the secondary space.

Coking coal prices have dropped, and players await OMC's iron ore auction scheduled next week for further clarity.

On the other, with Indian Customs having stopped clearances of imported scrap cargo from the UAE, there can be a shortage in the material in the near future, which may impact steel prices upward. The UAE is one of the key scrap suppliers to India and many coast-based plants depend on the same. The clearances were stalled following a detailed risk analysis carried out Indian Customs. It seems metallic scrap is being imported from the UAE despite an export ban in that country. And the importer squarely falls within the ambit of this ban.

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.

15 May 2023, 09:44 IST

 

 

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