India: Steel raw material prices dip. For how long?

Reversing the trend seen in the last couple of months, prices of all key input materials for steel-making decreased m-o-m in November, reveals data compiled by SteelMint. However, since end-October, mostly all input prices started dipping.

• Coal: The bi-weekly index tracking the average portside ex-Gangavaram prices of the South African RB2 5500 NAR fell 37% m-o-m in Nov'21, the second-sharpest fall amongst all the raw materials this month. This sharp downtrend had a cascading impact on all input materials. Average monthly prices in November hovered at INR 10,940/tonne (t) ($146/t) compared to INR 17,300/t ($231/t) in Oct'21. Global benchmark RB2 prices dropped because, first, the highly infectious new Covid variant, Omicron, brought uncertainty as to how logistics would be impacted going forward. Secondly, China's NDRC, alarmed by the rising trend in prices, announced that coal prices should fall in "a reasonable range" which they are yet to release after global prices started rising because of winter demand. In early November, these prices fell to $96.1/t FOB but rose to $136.81/t FOB in the last week of November, which compelled NDRC to intervene and possibly eye a target range of RMB 550-600/t ($86-94/t).
  
  

The domestic G9 grade (4750 k/cal) auctioned at South Eastern Coalfields (SECL) showed the sharpest drop by 47% m-o-m to INR 3,820/t in Nov'21 against Oct'21's INR 7,200/t due to rising production levels at national miner Coal India (CIL). Its output was up 6% over Jan-Oct'21 to around 300 million tonnes (mn t). As a result, power plants' coal volumes improved to nine days of generation stock, the highest since Aug'21. The inventory build-up was aided by lower demand for power with the onset of winter. With the easing of the coal stocks crisis, CIL is likely to increase the frequency of its auctions in reversal of a previous diktat whereby its subsidiaries were told to keep auctions on hold in a bid to divert almost all coal to the power utilities. SECL has sold 1.33 mn t through two spot auctions on 24 and 26 Nov'21.

• Coking coal: Prices of the Australian HCC fell 9% m-o-m in November to $385/t against October's $425/t on sluggish demand from the ex-China markets. As a result, imported Asian met coke prices fell 4% w-o-w in the third week of November
  
  

Meanwhile, Chinese demand for met coke and coking coal has turned weak on the back of the production cuts, with prices dropping 28% in November.

• Ferro alloys: Prices of the bi-weekly 60:14 grade silico manganese index emerging out of Raipur lost 20% m-o-m to INR 102,715/t in Nov'21 against INR 129,200/t in Oct'21. The downtrend stemmed from a drop in coal prices (ferro alloys are power-intensive), and steel demand and prices in November. Moreover, export demand cooled off because of the volatility in silico manganese prices as well as holiday sentiments in Europe. Domestic manganese ore prices also stayed subdued with MOIL raising prices by a mere 5% for November and rolling over for December.
  
  
  
• Scraps and metallics: All prices showed a downtrend, influenced by falling thermal coal and iron ore prices. Sponge iron is much dependent on the RB2 variety. The pellet-based P-DRI, ex-Raipur, declined 12% to INR 30, 050/t in November (compared to INR 34,100/t in October). Pig iron prices lost 9% to INR 41,650/t (INR 45,850/t) and domestic scrap (ex-Mumbai) edged down 2% during this period. The market was overall down also because of sluggish demand from the secondary mills which enjoy almost 60% share of the domestic steel market.
  
  
• Steel: This segment saw a mixed trend. For instance, the ex-Raipur billet index dropped m-o-m in November by 10% with average monthly prices touching INR 42,600/t (INR 47,200/t). The ex-Mumbai BF-grade rebar rose 5% to INR 60,700/t (INR 57,600/t) and IF grade dipped 4% to INR 50,400/t (INR 52,450/t) during this period. Wire rods (ex-Durgapur) dropped 9% to INR 46,600/t (INR 51,050/t). Ex-Mumbai trade level HRC prices remained almost flat at INR 70,900/t (INR 70,700/t) m-o-m in November. Overall sentiments were somewhat down in November but are expected to pick up from the current month
  
  
• Iron ore: This raw material, in terms of fines, lumps and the high-grade 63% pellets dropped m-o-m in November. The Fe63% fines emerging from Odisha inched down 2% last month to INR 6,300/t (INR 6,450/t). The Fe63% lumps (Odisha) dipped 4% in this period. However, the Fe63% pellets (DAP Raipur) dropped 14% m-o-m to INR 11,490/t in Nov'21 (INR 13,360/t). Prices are under pressure because one, additional supplies coming in with the expired leases in Odisha auctioned in 2020 allowed to liquidate inventory. Two, iron ore production has recovered to 19.37 mn t in October against 15.57 mn t in Sepember, up 24% m-o-m. Three, some of the operational leases have come into production. JSPL's Kasia (278.04 of geological reserves) has already done so.
  
  

Outlook

Global coal prices are expected to remain volatile over the entire winter season and the reason is China. Winter heating requirements increase fuel demand globally. However, gas prices in Europe are northward as inventories are under pressure. In China too, demand for coal will increase exponentially as the severe winter sets in. But NDRC's intervention may help keep prices on a leash.

Meanwhile CIL's improved performance will allow domestic coal prices to stay on the lower side, aiding sponge iron and IF players, while domestic iron ore will also be under pressure due to higher supply injection. Demand for steel may stay subdued on the back of year-end holidays globally which may overall pressure other input prices in December.