India: Steel, raw material prices sustain mixed trend in Aug

• Russian imports impact thermal coal prices
  
  
• Global lack of steel demand keeps coking coal, iron ore subdued
  
  
• Demand recovery on horizon but festive season may pressure prices
  
  

Morning Brief: Steel and its input material prices in August retained the previous month's trend, which was primarily a mixed one.

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 dropped 4% m-o-m in August, 2022 to INR 17,310/t against INR 18,000/t in July, 2022. Prices inched down because of the entry of cheaper Russian coal into India. Russia, faced with the western world's sanctions, is looking for alternate markets. Sponge iron manufacturers, on the other hand, were hedged in by record high South African RB2 prices till May. Naturally, they were frantically looking for cheaper alternatives which arrived in the form of Russian thermal coal, whose specifications match South African RB2 with a bit of blending with Indian domestic coal. Russian coal is currently cheaper by $40/tonne (t) CFR India.
  
  

Russian thermal coal import volumes have thus steadily risen from 0.33 million tonnes (mnt) in May to 0.92 mnt in June and 1.33 mnt in July. Although the figures for August are not yet in, industry circles expect this volume to rise further for this month.

• Australian low-vol HCC coking coal: Average prices of the Australian low-vol HCC, inched down in August to $260/t. In July, this commodity saw the steepest m-o-m fall among all input prices. However, at a micro level, prices fluctuated through August a bit. For instance, mid-month, these rose $36/t w-o-w mainly because of a slight uptick in demand from India. Also, mills in Japan and South Korea were heard booking the material after a lull of two-three months. But, overall, weak global demand signals are dragging down coking coal sentiments despite the La Nina alert in Australia - which will affect supplies.
  
  
• SECL's G9 (4750 GCV) auctions: CIL's major coal producing subsidiary, Southern Coalfields (SECL) saw the average bid price in August at INR 7,682/t, down 7% from INR 8,228/t seen in July.
  
  

The company conducted back-to-back auctions in July-August for the first time in CY22 indicating normalcy in coal supply. Notably, there was less burden on coal-fired generation as a result of the extended monsoon which brought down electricity demand.

At the same time, subdued participation was recorded from the power sector after it received sufficient coal via fuel supply agreements and thus opted to curtail costlier coal procurement via auctions.

Ferro alloys

• Silico manganese 60:14: Prices of the bi-weekly 60:14 grade silico manganese index emerging out of Raipur dropped 4% m-o-m to INR 77,820/t in August, 2022 against INR 80,805/t in July. Despite the selling pressure on smelters, low steel demand percolated down into low demand for silico manganese as well. Steel demand remained muted amid a slight m-o-m 7% increase in crude steel production in August.
  
  

Scraps and metallics

All showed an uptrend ranging from a marginal 1% (pig iron) to 5% (scrap).

• Pellet-based P-DRI: The pellet-based P-DRI, ex-Raipur, rose a marginal 2% to INR 34,600/t in August, 2022 (compared to INR 34,060/t in July, 2022). Prices upped amid the hike in prices of substitute raw materials like pellets and scrap. Demand for PDRI from Nepal also supported the price uptick.
  
  
• Steel grade pig iron: Pig iron prices rose a marginal 1% m-o-m in August to INR 47,390/t (INR 46,940/t in July). Prices showed only a marginal rise on the back of limited inquiries for finished products in major markets.
  
  
• Domestic scrap: The domestic scrap (ex-Mumbai) index trended up by 5% to INR 42,680/t in August, 2022 against INR 40,780/t in the previous month. Prices fluctuated throughout the month, in tandem with the fortunes of semis. Scant scrap availability also helped prices to rise at times.
  
  

Steel

This segment, comprising semi- and finished, saw prices dipping across the spectrum except for induction furnace-route (IF-route) billets.

• Billets: The ex-Raipur billet index dipped a marginal 1% m-o-m to INR 48,860/t in August, 2022 (INR 49,290/t in July) on sluggish finished steel sales although spot trade did improve at times as manufacturers did need-based restocking.
  
  

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

• Rebar: The ex-Mumbai BF-grade dipped 3% to INR 56,840/t (INR 58,320/t) in August. But the IF grade rose 2% to INR 55,840/t (INR 54,520/t). Wire rods (ex-Durgapur), fell 3% to INR 52,760/t (INR 54,300/t).
  
  

The rebar market saw limited buying enquiries or bulk trade amid low demand for project construction steel due to the monsoons. Primary mills, weighed down by the dull monsoon demand, were impelled to drop prices.

Firm thermal coal prices did not allow a steep fall in IF-grade prices though. Also, sustained production cuts by the smaller mills has also seen depletion in inventory at stockist level which supported prices.

• HRC: Ex-Mumbai trade-level HRC prices lost 3% in August to touch INR 57,180/t (INR 59,250/t) m-o-m in July. However, the m-o-m fall has slowed down slightly. The production cuts allowed the inventory levels to drop to comfortable levels and arrested the steep price falls. The export tax levy continues to stall exports and impact flats domestic prices even though some procurement is happening. The raw material price slide is also keeping prices depressed.
  
  

Iron ore

This raw material, in terms of fines, lumps and the high-grade 63% pellets, showed a mixed trend.

• Fines, lumps and pellets: Fe62% fines from Odisha dipped 2% to INR 3,410/t (INR 3,480/t) while the Fe63% lumps (Odisha) upped a marginal 1% to INR 7,000/t (INR 6,950/t). Fe63% pellets (DAP Raipur) gained 3% m-o-m to INR 8,890/t (INR 8,620/t).
  
  

After the export duty, and inventory pile-up, several pellet makers started exploring alternate markets like southern India and Gujarat. This led to a slight rise in pellet production as well as prices in August. Pellet prices also trended up as demand for the material usually rises in the rainy season against iron ore which retains more moisture. Lumps remained somewhat supported by pellets, scrap, sponge iron as well. Iron ore prices dipped on weak cues for finished demand.

Short-term outlook

As long as steel demand from China and Europe remains weak, prices of inputs like coking coal and iron ore may stay depressed.

Back home, in India, demand may recover as the monsoons start receding in Q3. But the festive season may act a spoilsport where semis' finished and prices are concerned.