India: Steel, raw material prices continue to dip in May; but coal stands firm

• Subdued domestic finished steel demand impacts semis and raw materials
  
  
• Coal prices remain firm m-o-m amid supply issues
  
  
• June may see prices dropping further across raw material, semis and finished on export tax impact
  
  

Morning Brief: Steel and its input material prices, except for coal, continued their downtrend for the second month in a row in May after showing an unrelenting northward movement prior to April, especially when the Russia-Ukraine war started. Pellets and silico manganese prices underwent the steepest fall last month. SteelMint goes behind the scene:

Coal

• South African RB2: The bi-weekly index tracking the average portside ex-Gangavaram prices of the South African RB2 5500 NAR sustained the uptrend, edging up a further 3% m-o-m in May, 2022 to INR 22,050/t against INR 21,510/t in April, 2022, which meant prices have persisted over 20k levels since March. The prices remained high mainly on account of lesser vessel arrival from South Africa which put a strain on supply. It was only in the last week of May that prices dropped by around INR 2,000/t as sponge iron players, who are the key buyers of this grade, stayed away.
  
  
• With the Russia-Ukraine war stopping their exports of coal to the European Union and Turkey, these two geographies are sourcing from South Africa. Consequently, vessels are being diverted to these regions, making availability scarce on the Indian side, which is supporting the record-high price levels.
  
  
• Australian low-vol HCC coking coal: Average prices of the Australian low-vol HCC, however, gained 6% against April's steep drop. Prices rose m-o-m in May to $540/t against April's $510/t. Of course, prices had touched an all-time high in March of an average monthly $620/t. Prices remained somewhat volatile due to a few factors - ArcelorMittal kept its 75,000 tonne Australian coking coal auction unawarded, demand returned in the market while supply became an issue due to bad weather in Australia. However, towards the month-end, prices fell by $60/t on sluggish demand for steel in India and Asia as most countries slowly move into the rainy season.
  
  

The Russia-Ukraine war-led supply disruptions had made the EU turn to Australia, sparking a price rally like never-before in March.

• SECL's G9: Price of the G9 (4750 GCV) grade in SECL's auction jumped to a new high of INR 9,299/t in May, as prevailing supply tightness compelled buyers to raise their bids.
  
  

SECL is not conducting timely auctions because a major portion of the coal is being diverted to power plants gasping for coal. Notably, the auction for May was held after a month's gap with reduced offerings.

Meanwhile, buyers looking for cheaper alternative - at a time global prices have been touching record levels - are aggressively procuring from the auctions.

Ferro alloys

• Silico manganese 60:40: Prices of the bi-weekly 60:14 grade silico manganese index emerging out of Raipur dropped a sharp 16% m-o-m to INR 88,980/t in May, 2022 against INR 105,400/t in April 2022. Prices have been falling consistently since March. The downtrend was caused by selling pressure brought on by the double whammy of demand-deficit domestic and export markets. Domestic demand dropped amid a lack of buying appetite for finished steel as prices had shot up. As a result, prices in both key markets of Raipur and Durgapur slid consistently through the month.
  
  

Scraps and metallics

All showed a moderate drop ranging from 4-9%, influenced by the cut in production from the electric furnace segment.

Pellet-based P-DRI: The pellet-based P-DRI, ex-Raipur, dropped 8% to INR 33,840/t in May, 2022 (compared to INR 36,790/t in April, 2022) amid falling sponge and billet prices (because of the production cuts undertaken by electric furnace mills). Overall, finished steel demand impacted sponge too.

Steel grade pig iron: Pig iron prices fell 9% m-o-m in May to INR 52,720/t (INR 58,220/t). Prices trended down due to improved domestic supply amidst slow demand as steel end-use declined. The fall in export realizations was one of the major factors behind softening prices. Prices, after hovering at an average INR 40,000/t over June-December, 2021, rose to INR 58,000/t levels in March-April as Russia left the market amid the war. Indian producers, taking advantage of Russia's absence, raised the exports offers, pulling up domestic prices in the process. Later, with Russia's return, domestic prices cooled down.

Domestic scrap: Domestic scrap (ex-Mumbai) index dipped 4% to INR 42,000/t in May, 2022 against INR 43,760/t in the previous month. Finished steel demand was tepid which also pulled down prices a little. The lower sponge prices acted as a damper too. Production cuts by electric furnaces kept demand low and pressured prices.

Steel

This segment, comprising semi- and finished, saw prices dipping in the range of 7-9%.

• Billets: The ex-Raipur billet index lost 9% m-o-m to INR 50,890/t (INR 55,920/t) in May. Prices mainly showed a downtrend on lean finished steel demand.
  
  
• Rebar: The ex-Mumbai BF-grade dropped 7% to INR 67,750/t (INR 72,880/t), while the IF grade dropped 8% to INR 59,570/t (INR 64,930/t). Wire rods (ex-Durgapur) also lost 8% to INR 55,570/t (INR 60,380/t).
  
  

India's induction furnace finished long steel market witnessed weak buying enquiries and trading activity due to muted demand. Overall, the market for longs saw inventory piling up as buyers opted for need-based procurement. Primary mills also operated in a market where domestic and export demand both remained subdued, leading to price drops.

• HRC: Ex-Mumbai trade level HRC prices lost 8% to touch INR 69,830/t (INR 76,030/t) m-o-m in May.
  
  

As with longs, flats too were weighed down by lacklustre domestic and overseas demand. Only those projects with strict completion deadlines procured. China's cut-throat pricing strategy and a dried-up EU market edged out Indian mills from exports, putting them further on the backfoot in an already depressed domestic market. The government's sudden 15% export duty in the third week shocked the market, making buyers scurry to the sidelines in expectations of further price falls.

Iron ore

This raw material, in terms of fines, lumps and the high-grade 63% pellets, dropped 12-16% m-o-m in May, 2022.

Fines, lumps and pellets: Fe63% fines from Odisha were down 13% to INR 5,380/t (INR 6,190/t) while the Fe63% lumps (Odisha) dropped 12% to INR 7,850/t (INR 8,890/t). Fe63% pellets (DAP Raipur) lost 16% m-o-m to INR 10,020/t (INR 11,930/t).

The iron ore price drops were propelled by weak demand for semis, and finished steel. Falling steel margins in China led to demand for low grade ore, which dampened sentiments for higher grades further. The export duty impacted export sentiments.

Subdued pellet export offers and fall in sponge iron prices also contributed to weak sentiments. Pellet makers in Raipur reduced prices on weak demand and falling sponge iron prices. Earlier, buyers were not keen to accept the higher offers especially since material from Odisha looked cheaper. The price drop also happened amid decrease in pellet export offers, especially after the government slapped a steep 45% export duty on the material to control soaring steel prices. Buyers stayed away, waiting for pellet prices to fall further.

Outlook

Prices of raw material to finished products will remain under pressure in June. Exports will take a hit after imposition of the export taxes across iron ore and intermediary products. Export bookings have already been impacted.

The market buzz is that Indian mills are now eyeing exports of boron-added steel since this category does not come under the purview of the export tax. Of course, SteelMint has not verified this claim nor has it heard of any such export bookings yet.

Similarly, with pig iron. It has been subjected to a 15% export duty but not granulated pig iron (GPI). The rumour is, exports of GPI may increase going forward.

Also, production may take a hit in June, propelled by the high coking coal prices, subdued demand and export duty. These factors may deter primary mills from continuing with the capacity ramp-up plans in the near term while the secondary ones are already working at lesser capacity utilization.