India: Steel, raw material prices slide m-o-m in May; Will trend continue in June?

• Coking coal sees steepest fall
  
  
• Global cues weigh on Indian prices
  
  
• Short term may see further price drops
  
  

Morning Brief: May was gripped by a down syndrome. Steel and its raw material-related prices declined across-the-board last month, data maintained with SteelMint reveals. Global steel prices dropped, as weak demand signals from China beeped on the steel radar. The reduced prices encouraged other exporting countries to sell their inventory offshore at aggressively lower offers, which also worked against the Indian mills as well as coking coal and iron ore prices.

SteelMint goes behind the scene:

Coal

• South African RB3 (4800 NAR): South African RB3 4800 NAR grade non-coking coal dropped 9% in May 2023 to $100/tonne (t) CNF Gangavaram.

  The drop can be traced to a few reasons. One was the lacklustre demand from the sponge iron sector, which procures this material in particular, on the back of poor offtake in finished steel. Secondly, domestic coal availability increased as national coal miner Coal India (CIL) bolstered its supply to the non-power sector. CIL's dispatches to this segment rose a record 44% in end-April. Lastly, with a fall in energy prices globally, domestic coal prices also corrected downward, which worked to the benefit of the domestic users.

  Resultantly, indexed port-side ex-Gangavaram prices of the same also fell and by as much as 10% to INR 9,210/t (from INR 10,240/t in April).
  
  

• Australian Premium HCC coking coal: Average prices of the Australian Premium HCC declined the most, by 14% m-o-m in May 2023 to $250/t against $290/t in April. Steel demand erosion and weak procurement signals from met coke producers in China led to a drop in its own coking coal prices in May. Globally, crude steel production dipped 2.4% in April, and the weak cues continued into May. Other steel producing countries also adopted a cautious approach in terms of procuring raw materials as demand remained subdued. Making matters worse, Australia's supply remained on the higher side.
  
  
• Non-coking coal (5000 GCV) ex-Bilaspur: Prices in the reseller's market dropped a 13% to INR 6,480/t in May compared to INR 7,420/t in April. Mild temperatures resulted in lower domestic coal demand and provided CIL the leeway to increase offering via e-auctions which resultantly saw lower bids. At the same time, CIL is progressively increasing production, and this helped the supply side to improve, thereby increasing the allocation for the non-power sector.On the global front, thermal coal trade patterns are gradually settling in tandem with reduced risk associated with European energy supply amid adequate coal and gas stocks. This also indicates signs of better supply which are pushing global prices lower.
  
  

Ferro alloys

• Silico manganese 60:14: Prices of the 60:14 grade silico manganese index emerging out of Raipur dipped 2% m-o-m to INR 73,610/t in May, 2023 against INR 74,750/t in April. Low domestic and exports demand kept prices somewhat stable last month, with slight variations. Apart from the demand-supply mismatch, a fall in imported manganese ore prices as well as low offtake in manganese alloys at the higher end of the spectrum kept prices under pressure.
  
  

Scraps and metallics

These showed a downward trend because of sluggish demand for finished steel especially in the electric furnace space.

• Pellet-based P-DRI: The pellet-based P-DRI, ex-Raipur, dropped 5% to INR 28,570/t in May 2023, compared to INR 30,100/t in April amid the drop in prices of other competing materials like pellet and scrap.
  
  
• CDRI mix: Prices of CDRI with a mix of 70% lumps, 30% fines, FeM 80% (+/-1), ex-Rourkela inched down 4% m-o-m in May to INR 29,990/t (INR 31,400/t in April).
  
  

Sponge prices fell because of the lower coal prices along with lesser steel demand.

• Steel grade pig iron: Pig iron prices dipped by 4% m-o-m in this period to INR 42,360/t (INR 42,740/t in April).
  
  
• Domestic melting scrap HMS 80:20 (ex-Mumbai): These dipped 2% to INR 37,420/t last month against INR 38,200/t in April. The scrap market was overall slow as buyers opted for the comparatively cheaper sponge iron, amid lack of demand for semis and finished.
  
  
• Imported melting scrap: Prices of shredded melting scrap of Europe origin, in containers, CNF Nhava Sheva showed a 4% drop in May to $440/t compared to $460/t in April.
  
  

The imported scrap market saw some upheaval last month as Indian Customs stopped clearing of material originating in the UAE, which saw pricing upping slightly in the second week of May. However, overall, trade was slow amid lacklustre demand, especially from the induction furnace mills.

Iron ore

Prices showed a dip across iron ore fines, lumps and pellets amid weak global and domestic indications.

• Fines & lumps and pellets: Fe62% fines from Odisha eroded by 3% in May to INR 5,500/t (INR 5,680/t) while the Fe63% lumps (Odisha) dropped a sharper 8% to INR 7,500/t (INR 8,120/t) m-o-m.

  Fines prices fell amid the decline in pellet prices, curtailed pellet output and limited trading. Weak response to Odisha Mining Corporation's (OMC's) iron ore auction also kept iron ore prices under pressure. At OMC's auction, where 746,000 t of iron ore fines (Fe54-64%) were offered, only 16,000 t (Fe55-58%) were booked.

  The bi-weekly pellets (63%) index saw a drop of 4% to INR 8,980/t (INR 9,380/t). PELLEX fell by around INR 420/t m-o-m amid limited trade. Pellet prices dropped due to lower bids on falling sponge prices and drop in pellet exports. Pellet export prices declined by $10/t tracking the global price drop. Demand for pellets and other high-quality raw materials used in the production of steel was sluggish due to muted demand in China. Buyers are mostly preferring to buy from the portside rather than seaborne material.
  
  

Steel

This segment, comprising billets and finished products, saw prices dipping, impacted by lack of appetite for finished products.

• Billets: The ex-Raipur billet index dropped 4% to INR 44,250/t in May (INR 46,280/t in April) amid dull finished steel sales as well as subdued raw material prices.
  
  
• Rebar & wire rods: The ex-Mumbai BF-grade also fell 4% to INR 56,920/t (INR 59,450/t) in the period under review. The IF grade lost 3% to touch INR 53,370/t (INR 54,880/t) while wire rods (ex-Durgapur) lost 6% to stand at INR 48,090/t (INR 51,160/t) last month.
  
  
• HRC: Ex-Mumbai trade-level HRC prices decreased 4% to INR 57,710/t (INR 59,940/t).
  
  

Global factors like Chinese lack of demand, and cheaper imports kept mills under pressure. Exports were very subdued, which did not allow any elbow room to raise prices.

Outlook

The scenario may not change sharply in the near term. The market buzz is that mills may lower their benchmark prices by INR 1,000-1,500/t for June sales which can have a cascading effect on trade-level as well as raw material prices.

Moreover, with the rainy season waiting in the wings, any significant demand upturn is not expected, especially in construction steel. Thus, mills, staring at an inventory pile-up, may be forced to rationalize production in the near term.