India steel index stays in positive zone for 3 weeks in a row amid tight supply

• Maintenance schedules fuel supply shortage in longs, flats
  
  
• Raw materials' cost push seen amid firmer finished prices
  
  
• Further production cuts likely in flat steels in May'24
  
  

Morning Brief: The BigMint India Steel Composite Index has been traversing in positive territory for three weeks in a row. For the week ended 3 May, 2024, the index was up 1.5% to 145.1 points (142.9).

A similar three-week positive run was last seen in late September-early October 2023 - but then, the w-o-w increases had been minuscule. The performance over the last three weeks, on the other hand, have been comparatively better. From a flat level on 12 April, the index rose 1.6%, 0.7% and 1.5% in successive weeks till 3 May.

The longs index upped a significant 2.4% but, more importantly, flats too are seeing a turnaround.

What factors are keeping the index supported?

Longs

Production cuts encourage prices hikes in BF rebar: Tier-1 mills have taken repeated interim list price increases on the back of the production cuts and reduced supplies in March-April. With some tier-1 mills increasing list prices by INR 1,500-2,500/t ($18-30/t) for early-May 2024 dispatches, trade-level BF-route prices rose by INR 1,200-2,000/t ($14-24) across markets. Exy-Mumbai prices increased by INR 1,500/t ($18/t) w-o-w to INR 57,800/t ($693/t), minus the 18% GST.

Supply in certain grades continued to be tight due to maintenance shutdowns undertaken in April.

Increase in prices of induction furnace rebars, which command 65-70% of the market, also pushed up BF rebar tags.

IF-route rebar prices rise in cautious market: India's IF rebars witnessed an uptick of INR 500-1,900/t ($6-23/t) w-o-w across markets. IF-rebar, ex-Mumbai in particular, rose by INR 800/t ($10/t) to INR 52,100/t ($625/t). Average spot trades were observed amid price constant fluctuation which turned buyers cautious before making bulk procurements. However, sellers maintained their higher offer levels because of the rising prices of scrap, sponge iron and billets.

Raw materials cost push: Some raw materials became more expensive amid firmer finished prices. Odisha iron ore fines Fe62% index rose INR 50/t ($1/t) to INR 5,000/t ($60/t). Secondly, owing to the drastic rise in manganese ore prices from MOIL and Sandur, smelters raised silico manganese prices by 30% w-o-w, which again induced billet makers to raise prices. Domestic billet prices increased sharply by INR 800-1,700/t ($10-20/t), with a major increase of INR 1,700/t ($20/t) seen in the Chennai market. Similarly, sponge iron prices in all key locations increased by INR 400-1,150/t ($5-14/t).

Flats

HRC-CRC prices rise amid maintenance shutdowns: As with rebars, mills undertook strategic maintenance shutdowns in April. This included 15-day shutdowns of a hot strip mill (HSM) and a cold rolling mill (CRM) of a large tier-1 producer. The shortfall in CRCs is estimated at 90,000 t, over the last fortnight.

The supply tightness supported the price hike of around INR 500/t ($6/t) taken by tier-1 mills for end-April sales. Post-hike, list prices of HRCs stood at INR 53,500-54,000/t ($642-648/t), and CRCs at INR 58,800-60,500/t ($705-725) both exy-Mumbai, excluding 18% GST.

On cue, trade-level prices of CTL HRCs of 2.5-8mm rose by INR 500/t ($6/t) to INR 53,900/t ($646/t) ex-Mumbai. The price hikes encouraged need-based procurements from end-users in small parcels.

The increased diversion of CRCs towards making GP and colour-coated items is supporting CRC price hikes but traders' market remains unmoved by this development.

Mills withdraw export offers amid higher domestic realisations: The BigMint HRC export index remained inactive last week as mills withdrew from Southeast Asian and Middle East with an eye on the higher realisations in the domestic market. So much so that the increased offers from China and Japan failed to draw them back into the exports arena. Chinese-origin import offers into Vietnam rose $5/t CFR w-o-w. Both Chinese and Japanese offers to the Middle East rose $10/t CFR w-o-w.

Outlook

Keeping the inventory pile-up and low demand scenario in flats, some mills are mulling further maintenance shutdowns in May. The buzz is, the production loss in May can touch over 300,000 t. Another mill may extend its maintenance into June, which can lead to an additional production loss of 180,000 t.

Overall, short-term sentiments are mixed. One segment feels the price hikes will get absorbed partially while another says a reduction is likely in May.

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.