India: Steel, raw material prices show mixed trend in July

• Coking coal prices correct the most m-o-m
  
  
• Iron ore, pellets prices gain amid supply constraints
  
  
• Russian PCI imports may ease thermal coal availability
  
  
• Finished prices dip but further sharp corrections unlikely
  
  

Morning Brief: Steel and its input material prices broke their three-month downward spell with a mixed trend. Production cuts across tier 1 mills and the secondary sector led to a drop in prices of some commodities in July while others gained due to supply constraints.

SteelMint goes behind the scene:

Coal

a) South African RB2: The bi-weekly index tracking the average portside ex-Gangavaram prices of the South African RB2 5500 NAR dropped a marginal 2% m-o-m in July, 2022 to INR 18,000/t against INR 18,410/t in June, 2022. Prices inched down as sponge iron makers, for whom, the South African RB2 fits all specs, refrained from making bulk purchases for two reasons. One, the emergence of alternate blends dampened demand for RB2 since, earlier, the steep global prices and reduced supply had offered traders little headroom for lowering prices. The gas supply disruptions and high energy prices in Europe are keeping prices of RB2 high, forcing the option of cost-effective blending on sponge-iron makers.

Two, sponge makers showed little appetite for the material amid large-scale crude steel production cuts by the secondary mills.

Thirdly, these are position cargo at the portside, procured earlier. But now, with production down, there are few takers.

Meanwhile, global coal prices are ruling high and domestic availability is still an issue.

b) Australian low-vol HCC coking coal: Average prices of the Australian low-vol HCC, lost a sharp 35% in July to $260/t against June's $400/t, the steepest m-o-m fall among all input prices. It may be recalled prices had touched an all-time high in March of an average $620/t. The drop was rooted in the fact that global steel production dropped with mills consequently showing no appetite for spot purchases. Even heavy rains in Australia and possibilities of supply disruptions failed to spook the markets and prices remained dampened.

c) SECL's G9 (4750 GCV) auctions: CIL's major coal producing subsidiary, Southern Coalfields (SECL), has been conducting auctions in alternate months so far in 2022. The reason is persistently high demand from the domestic power sector. The average bid price in July was INR 8228/t, down from INR 9,229/t seen in May. Prices fell as end-user demand dropped amid the monsoons. Moreover, the previous auctions had seen an increase in prices amid limited offerings, which had adversely impacted end-user production costs, leading to production cuts.

Ferro alloys

Silico manganese 60:40: Prices of the bi-weekly 60:14 grade silico manganese index emerging out of Raipur dipped a marginal 1% m-o-m to INR 80,805/t in July, 2022 against INR 81,970/t in June amid subdued demand for finished steel and market uncertainty. The 15% export duty stalled exports which impacted finished demand and in turn led to crude steel production cuts. It may be mentioned, India's crude steel production dropped 10% in July.

Scraps and metallics
All showed an uptrend ranging from 4-8%.

i) Pellet-based P-DRI: The pellet-based P-DRI, ex-Raipur, rose 8% to INR 34,060/t in July, 2022 (compared to INR 31,430/t in June, 2022). Prices were volatile through the month, rising and falling in tandem with semi-finished prices.

Average monthly prices rose on the back of some good domestic bookings through the month. Moreover, sponge iron demand from Nepal and Bangladesh remained strong, influencing domestic prices.

ii) Steel grade pig iron: Pig iron prices rose 4% m-o-m in July to INR 46,940/t (INR 45,020/t in June). Prices upped on the back of a rise in semi-finished prices towards the month-end.

iii) Domestic scrap: The domestic scrap (ex-Mumbai) index trended up by 7% to INR 40,780/t in July, 2022 against INR 37,940/t in the previous month. Improved demand for semi-finished steel amid limited availability of scrap helped to lift prices.

Steel
This segment, comprising semi- and finished, saw prices dipping in the range of 3-7% across the spectrum. Only billet prices were up m-o-m.

a) Billets: The ex-Raipur billet index gained 6% m-o-m to INR 49,290/t in July, 2022 (INR 46,400/t in June). The prices were supported by stronger demand and rising steel prices in the northern region. As a result, sellers held sufficient orders in hand.

Moreover, higher prices of raw materials like sponge iron, pig iron and scrap also supported the higher billet prices.

b) Rebar: The ex-Mumbai BF-grade dipped 3% to INR 58,320/t (INR 60,410/t) in July, while the IF grade also dropped 3% to INR 54,520/t (INR 56,380/t). Wire rods (ex-Durgapur), however, gained 7% to INR 54,300/t (INR 50,790/t).

India's induction furnace finished long steel market witnessed limited buying enquiries or bulk trade amid low demand for project construction steel due to the monsoon. Firm thermal coal prices did not allow a steep fall in prices though.

Primary mills, weighed down by the dull monsoon demand, were impelled to drop prices.

c) HRC: Ex-Mumbai trade-level HRC prices lost 4% in July to touch INR 59,250/t (INR 61,960/t) m-o-m in June.

Flats were hit hard by the export tax since majority of Indian steel exports comprise of flats, which, in turn, impacted domestic prices. Indian mills offered boron-added HRCs for exports to the UAE and Vietnam but there were few takers. As a result, domestic prices were in free-fall. However, the production cuts allowed the inventory levels to drop and arrested the steep price falls in July.

Iron ore
This raw material, in terms of fines, lumps and the high-grade 63% pellets, rose in a range of 5-24% m-o-m in July, 2022.

Fines, lumps and pellets: Fe63% fines from Odisha rose 5% to INR 3,880/t (INR 3,690/t) while the Fe63% lumps (Odisha) upped a sharp 24% to INR 6,950/t (INR 5,610/t). Fe63% pellets (DAP Raipur) gained 9% m-o-m to INR 8,620/t (INR 7,930/t).

After the export duty, several pellet manufacturers had cut production. Some plants had shut down while others operated at 40-50% capacity utilization. This led to the sharp spurt in prices of lumps.

Pellet prices trended up as demand for the material usually rises in the rainy season against iron ore which retains higher level of moisture. This also usually leads to shortage of iron ore in the monsoons.

Short-term outlook
Imports of PCI imports from Russia are being explored. One booking has also been closed. Sponge makers are eying blending of Russian PCI with other thermal coal grades to use as fuel. A leading primary mill is also offering thermal coal from its opencast mine in Mozambique that has proven reserves of 700 mnt. Thus, the coal supply scenario may ease for the sponge iron sector in the next couple of months.

If the crude steel production cuts sustain, this may lead to further dampening of input material prices in the current month.

However, finished steel prices seem to have bottomed out and there is little headroom for a strong downward correction from current levels.

~By Madhumita Mookerji