India steel index stays range-bound for months. What to expect in Q4FY'24?
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- Cost push, imports, dull exports keep index in narrow groove
- Mills may factor in rising coking coal prices in Q4
- Global easing in interest rates may spell good news for steel
Morning Brief: The India Steel Composite Index closed flat for the week ending 17 November, 2023 at 145.60 points.
The India Flat Steel Composite Index was also stable, at 150.60 points (150.70 in the previous week). In a similar vein, the India Long Steel Composite Index remained inert w-o-w at 140.7.
However, it may be noted that the composite index, although creeping down, has remained very range-bound since July this year, correcting only marginally.
This is more noticeable in the longs index, where prices are not falling beyond a certain level. As a result, even if the longs index dips, it springs back almost to the previous level.
Factors keeping index range-bound for months
Cost pressures limit sharp price movements: A key reason keeping prices in a narrow band is the cost pressures. Mills cannot afford to cut prices beyond a level as this will not cover the cost of production. To rewind a typical scene - when the cost of production increases, mill generally cut back production which pulls prices back a notch or two higher compared to the previous levels. This higher price level is resisted by buyers, and is followed by a subsequent downward correction from mills.
Coking coal cost push may be felt in Q4: Having said that, tier-1 mills refrained from raising list prices over October-November, 2023, preferring to roll over the same. SteelMint heard that the impact of the higher coking coal prices are likely to be felt in the fourth quarter (January-March, 2024) of the current fiscal. In such a scenario, mills will have no option but to raise prices to make good the higher cost of production. Inventories are on the higher side at the trade, OEM and even perhaps mill levels, which called for a reduction in hot rolled and cold rolled prices by INR 300-600/t ($4-7/t). But still mills do not yet want to take call on any price cut. They would rather wait and gauge the market pulse, a strong factor behind the lacklustre index.
Exports interest revives slightly: A persistently stagnant European Union market showed signs of slight activity. Indian mills resumed hot rolled coil (HRC) export offers here after a gap of almost a couple of months. Around 20,000 t of HRC cargoes were booked at $685-690/t (Euro 639-644/t) CFR Antwerp last weekend for December, 2023, shipment. Another parcel of 5,000 t of CRCs were booked at $790/t.
Interest in the downstream demand has revived in the EU, as per some sources, while others feel this could be a pre-winter restocking move rather than signs of a more sustained demand upswing. Meanwhile, Indian mills continued to keep HRC export offers on hold for markets like Southeast Asia and the Middle East. This slight export action possibly also kept the index stable.
Imports may be a bother till year-end: Import volumes of bulk HRC and plate cargoes were disturbingly high at well over 525,000 tonnes compared to 235,000 t in September. Imports may continue to be high till this year-end as sizeable bookings were closed around August with prices showing a slight uptrend from July onwards. However, these worrisome volumes may taper off from January onwards with the government intervening with quality control strictures and seeking explanation on imports.
Festive season dampens market: Looking at the recent past, the domestic market for both longs and flats across tier-1 and tier-2 mills remained lacklustre because of the Diwali and festive holidays, which also saw labour exodus. This scenario kept the index flat w-o-w.
Outlook
The Chinese production cuts are giving mills there a reason to raise prices to nurse back their badly hit margins. Thus, prices in China are showing an upswing with Baowu Steel, and Vietnam's key mills having already raised prices. Indian mills, instead, are likely to watch the global movements keenly in the short term, before taking any price decision. But, Q4FY'24 may see an upward correction.
Looking at the long term, the market is abuzz that the European Commercial Bank, US Federal Reserve and the Bank of England will all possibly start easing their monetary policies by the second half of 2024. Eased interest rates will inject liquidity in the system and whip up consumption across commodities, including steel.
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.
SteelMint organizing 2nd Indian Steel & Metal Conference in Jan'24
Global developments over the last few years have impacted the steel trade and its supply chains worldwide, shaking market confidence. The need of the hour is to ward off risks, make supply chains resilient to global shocks, and instil confidence in steel end-user industries. Keeping these factors in mind, SteelMint, along with the Steel Users Federation of India, will be organizing the two-day 2nd Indian Steel and Metal Conference: Supply Chain & Sourcing Strategies, over 10-11 January, 2024 in Mumbai. This is the only conference focusing on steel end-user industries and their issues. It will be followed by the SUFI Steel Awards, 2023. Register fast to avail of special offers.
