India: What factors are forcing mills to keep prices in check?

Mostly all of India's leading steel mills have announced a downward price correction. Following the move, list prices of flat steel stand reduced by around INR 2,500/t ($33/t) for early December supplies to INR 67,500-68,000/t ($900-906/t) for hot rolled coils and to INR 74,500-75,000/t ($993-1,000/t) for cold rolled coils.

In longs, rebar prices, post-revision, are now at around INR 57,000-57,500/t ($760-766/t), down INR 3,000/t and wire rods, at INR 57,500-58,000/t ($766-773/t), dipping by INR 2,000/t ($27/t). Prices are ex-Mumbai, exclusive of 18% GST.

Reasons for the price correction

• Fall in global prices: Global steel prices have been correcting for around a month now, dragged down by lower thermal and coking coal and met coke prices, exerting pressure on domestic mills. Even though Chinese steel futures have remained stable since early-November, prices are not likely to revise upwards soon because of China's production cuts and an overall lack of demand as it, along with western countries, enter deep winter, a lean construction period. Moreover, China is not encouraging too much of carbon-spewing industrial activity ahead of the Winter Games.
  
  
• Easing in raw material prices: Raw material prices have eased for Indian mills over November, putting less pressure on production costs. For instance, the Australian premium low vol HCC coking coal prices lost around $90/t over the last fortnight from $426/t to $336/t. It may be recalled, these prices had escalated to around INR 23,500/t levels over Jan-Oct'21 which translated into a cost impact of INR 18,000-19,000/t for mills. South African RB2 portside rates eroded 37% m-o-m in November.
  
  

National miner NMDC's iron ore lumps prices have dropped to eight-month lows while global spot prices of the benchmark Fe62% fines declined to $98/t levels from previous stratospheric highs of $230/t.

• Imports an option? Import prospects are up with the drop in global prices since landed costs are estimated to be lower than domestic. For instance, a recent cargo of 25,000-30,000 t of HRC was booked from South Korea at $825-835/t CFR India. This translates into a landed cost of INR 62,000/t, almost INR 6,000/t lower than current domestic prices.
  
  
• Preference for IF-route: Demand had been hit by a long and severe monsoon period, followed by the festive season. But, at present, OEM demand is good, as per sources. Additionally, the construction season in India picks up from the second half. However, the difference between primary and secondary (induction furnace-grade) long products had widened to almost INR 8000/t after trade discounts compared to the usual INR 4,000-5,000/t, driving many end-user segments to opt for the latter, which has put further downward pressure on list prices.
  
  
• Exports dull: Overseas sales, which form a key portion of all major mills, have been hit for the last few months. Although mills have allocations, not many cargoes have been booked for December and January shipments, sources inform SteelMint. Export prices are low compared to what mills are getting in the domestic market. For instance, the HRC index declined $15/tonne (t), with a few Indian mills quoting lower than the Vietnamese, dragging down the index to as low as $800/t, in SteelMint's latest assessment. Rebar export prices have fallen to around two-month-lows on weak demand from importing countries. Export prices of BF-route rebar (B500B) currently stand at $705-710/t CFR Hong Kong, a drop of around $10/t, w-o-w and $60/t m-o-m.
  
  

Outlook

The fall in futures and spot prices in China has stalled for a week but any upward correction in global markets is limited, putting a finger on China's pulse.

India would follow the global trend since the exposure to exports is a considerable 30-35%.

Moreover, imports pressure may keep domestic prices in check although current bookings are for Jan-Feb'22 delivery. "Only BIS-grade imports are allowed into India, but still imports are an option at present," observed a source.