India steel index in the red for five weeks; Diwali fails to ignite spark

• Flats under pressure from imports, coking coal prices
  
  
• Liquidity crunch keeps longs sales subdued
  
  
• Trend may continue into short term
  
  

Morning Brief: The India Steel Composite Index closed further down for the week ending 10 November, 2023. The index has now been traversing in the negative zone for five consecutive weeks. It closed at 145.60 points, dipping a negligible 0.3% w-o-w, registering a ten-week low.

The India Flat Steel Composite Index was almost stable, being down a slight 0.20% to 150.70 points (151 in the previous week). In a similar vein, the India Long Steel Composite Index nudged down by a marginal 0.35% to 140.7 (141.2).

Factors that pulled down the index last week

Flats

Cautious mills roll over Nov prices: Indian tier-1 mills are caught in a fix. On the one hand, rising coking coal prices warrant a price increase. On the other, imports are a big worry and exerting pressure. So which way should prices move? Mills rolled over the tags of flats for November sales but there is a gap between the levels at which items are being traded in the wholesale market and the offers from key mills. Current mill-level prices of hot rolled coils (IS2062, Gr- E250, 2.5-8mm) are hovering at INR 58,500-59,500/t ($705-717/t) exy-Mumbai. CRC (IS513 Gr- O, 0.9mm) tags are at INR 63,000-64,500/t ($759-777/t) exy-Mumbai, minus 18% GST.

Trade segment feels import heat: Trade-level HRC-CRC prices edged down by INR 300-600/t ($4-7/t) in the key markets of Mumbai and Faridabad, and mainly for two reasons. One lay in the substantial volumes of imported HRCs and plates. October saw a volume of over 525,000 tonnes landing on Indian shores, a 124% jump from around 235,000 tonnes in September. Buyers were cautious, resorting to need-based purchases, watching which way prices move. The festive season also kept trade slow.

Impact of higher coking coal prices: Since coking coal prices started moving up from August, their impact is likely to be felt in the third quarter (Q3). Prices rose $16/t from $262/t in the April-June quarter to $278/t in the July-September quarter. September and October saw prices cross the psychological $300/t. This cost push is restraining mills from reducing prices sharply. At best, they can roll over, which they did, despite the imports worry.

Longs

Trade segment sale slows down: Trade-level prices of blast furnace-route rebars fell by INR 400/t ($5/t) to INR 56,000/t ($672/t) ex-Mumbai in a lacklustre festive market. Prices for the project segment remained range-bound at INR 55,000-55,500/t ($660-$666/t) amid tepid sales. Diwali sees labour exodus which slows down infra construction activity. Plus, state Assembly elections across various states are squeezing out liquidity and further impeding sales.

IF segment prices fall in dull market: The fall in blast furnace route rebar prices was also a function of the decrease in induction furnace-route prices. Since the latter commands 65-70% of the market, a price movement here profoundly influences the BF segment. IF-route prices fell by a significant INR 800/t ($10/t) w-o-w to INR 48,900/t ($578/t). The decline was influenced by lacklustre festive season sales, labour issues and liquidity squeeze -- because of elections.

With this decline, the BF-IF spread widened to INR 7,000/t ($84/t) last week.

Raw materials supportive: While coking coal is upwardly mobile and exerting pressure on BF-route prices, in the IF segment, iron ore remained range-bound, rising INR 50/t as indicated by SteelMint's weekly Odisha iron ore fines index. Australian PHCC rose $4/t w-o-w to $366/t CNF Paradip. Firm cost push pulled longs back from a sharper fall.

Outlook

In flats, imports may not be as high in the remaining part of the fiscal because of government intervention in the form of non-tariff barriers. Thus, mills may want to hold their prices and wait and watch. Even if there are rebates offered, these will not go beyond INR 500-1,000/t in flats.

In longs, prices may be under pressure in the near term because of liquidity issues in the market.

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.