India: Trade-level HRC prices fall by upto INR 1,000/t ($12) w-o-w on slow buying

Trade-level prices of hot-rolled coils (HRC) dropped this week by up to INR 1,000/t ($12/t) w-o-w, as per SteelMint's assessments.

Delay in credit recovery by distribution network participants and lower drive for procurement from the key end-user industries were some of the reasons behind the drop, hinted sources.

As per SteelMint's latest assessment on 15 March, trade segment HRC prices dropped by INR 700/t ($8/t) w-o-w to INR 59,500-60,500/t ($719-731/t) exy-Mumbai. However, cold rolled coil (CRC) (IS513 Gr O, 0.9mm) prices dropped by INR 300/t ($4/t) w-o-w to INR 64,500-65,500/t ($779-791/t) exy-Mumbai. Prices exclude GST at 18%. (INR 1 = USD 0.0120781 ; USD 1 = INR 82.7947)

Factors that led to a decline in market prices this week

Sluggish demand in traders' market: Demand for both HRCs and CRCs has remained sluggish since the beginning of the month. "The first two weeks have seen limited activity in the traders' market amid Holi. Market activity, however, is still sluggish as buyers are struggling with higher interest rates and distribution network participants are challenged by delays in credit collection," hinted a western India-based major distributor.

Reserve Bank of India announced an increase of 25 basis points in its benchmark lending rate to 6.50% in the first week of February. The above has increased the financing costs for buyers and sellers in the distribution channel.

Financial year closing: March marks the end of the financial year, and activities slow down toward the month-end. Meanwhile, the holiday mood kept trade activities subdued this month. Now, the focus of distributors/ traders and buyers will be on the financial books, another reason for a drop in buying interest. Also, most distribution channel participants had started clearing their MoUs with mills early in January and February. This has weighed on the traders' market activity this month, hinted a reliable source. "Demand in the traders' market is hardly 5-10% at present," shared another source. Thus a few distribution participants started offering lower in the traders' market, he added.

Factors to watch out for in the near term:

1. Mills stay bullish amid global cues: Major Indian steel producers are still bullish about the prices in the near term. "Export deals are getting concluded at higher prices in successive deals, especially in the European market. Also, both importing and exporting countries have recently increased their domestic sales prices," a source said. For instance, the Chinese steel major Baosteel has increased its HRC prices by RMB 200/t for April sales, while Vietnamese steel major Formosa Ha Tinh increased HRC (SAE1006, skin passed) price to $732/t CIF Ho Chi Minh City earlier this week.

Also, SteelMint's India HRC (SAE1006) export index rose by $8/t w-o-w to $716/t FOB east coast India this week. An increase in offers to the UAE by $10-20/t w-o-w to $750-760/t CFR was the leading factor behind this. Furthermore, Indian mills opine that export prices will rise further in Vietnam post-announcement from another steel producer, Hoa Phat. Hence, there is a delay in quoting offers in the Vietnamese market, hinted an EXIM source.

2. Elevated raw material prices: Prices of steel-making raw materials iron ore and coking coal stay elevated and are weighing on margins of steel makers. On a monthly average basis, prices of SteelMint's Odisha iron ore index (fines Fe 63%) rose to a year high.

Similarly, the monthly average premium hard coking coal (HCC, Australian origin) price stood at $379/t CNF India in March 2023 (till 16 March), dropping by a marginal $3/t against February. It is still higher than the levels seen from June 2022 till January 2023.

Outlook:
Mills are bullish about trade-level prices and feel sentiments will remain buoyed amid elevated raw material costs and rising global prices in the near term. Moreover, export deals are getting signed- another plus point. However, market participants feel trade-level prices will stay range-bound in the near term in a sluggish market, as the financial year comes to a close.