India steel price index returns to 6-month lows. What to expect in short-to-medium term?

• Flats struggle with additional inventory injection
  
  
• Longs see selective infra demand from govt sector
  
  
• Rebates may continue to encourage sales
  
  

Morning Brief: The India Steel Composite Index returned to an almost 6-month low for the week ended 12 January, 2024, closing down -8% to 140.4 points, a level last seen on 21 July, 2023.

Factors that dragged down the index last week

Additional supply hits Flats market: Some additional supplies in flats have been swamping the market, influencing prices downward in the process. NMDC has been selling hot rolled coils (HRCs) from its newly-operational Nagarnar Integrated Steel Plant (NISP) for some time now in the trade market. It is producing around 100,000 tonnes (t) at present.

In addition JSPL commissioned its 5.5-mntpa hot strip mill (HMS) at Angul in Q3FY'24 (October-December, 2023).

Sources revealed that currently the company is operationalizing only 2 mnt capacity out of the 5.5 mntpa and is working to supply mainly customised orders. "Supplies in coil form are less as they are selling these in the form of cut-to-length plates or hot strip mill plates (HSMP)," a source informed but added that a few coils have also been sent out for quality testing in the open market. Commercially, the coils would be made available by February.

Imports impact lessens: Mills can take a breather on the imports front as no fresh bookings were seen for January-February from non FTA (Free Trade Agreement) countries. The threat has dissipated since global prices have risen since end-October making imports less viable. But still cargoes are lying at ports that had been booked a couple of months back. However, this slight edge has been dented in flats by the excess supply in the system.

Infra steel demand ebbing Longs demand: Demand for longs is somewhat subdued as the government, the largest buyer in longs, is staying away. While there had been a pronounced thrust on infrastructure in the run-up to the approaching elections, this trend has decelerated at present with the government's focus shifting to welfare measures as elections draw closer this year. Hence, there is bound to be a funding crunch in infra as the same gets diverted into more populist welfare schemes.

Inventory piles up: Consequently, there is enough inventory in the system although these lessened somewhat in early January to 550,000 t levels from over 600,000 t in December. But this slight offtake increase was a function of the price cuts and discounts offered by mills to encourage sales. Post-these reductions, offers to the project segment are hovering at INR 50,000-51,000/t ($603-615/t) levels, largely stable w-o-w but retail prices for BF-route rebars dipped by INR 200/t ($2/t) to INR 52,000/t ($627/t) levels.

Outlook

With the election focus and funding shifting to welfare measures, demand for infra and construction steel will remain subdued this quarter y-o-y. Thus, the market may keep prices stable or offer further rebates to encourage sales.

"Whatever infra projects were required to be awarded or closed have already happened in the current fiscal and thus demand for infra and construction steel will be muted going forward, although there can be sporadic fillip to certain other types of steel - for fulfilling a few state government populist measures," a source admitted.

Moreover, many of the mega housing and other projects previously announced by the present governments will achieve closure in the next couple of years, which would further dent demand.

"Consequently, India's steel demand, which had been ruling at 8-12% over the last 2-3 years, may moderate to 2-5% by FY'25," the source added.

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.