India: Wire rod conversion spread increases in Jul'21 m-o-m in Raipur

The margins for converting billets into wire rods (also called conversion spread) recorded a rise of 8% m-o-m in Raipur but were marginally down by 1% in Durgapur, m-o-m in Jul'21, as per data maintained by SteelMint.

The monthly average conversion spread was at around INR 4,200/tonne (t) in Raipur throughout the month, while in Durgapur, the same was registered at INR 3,200/t.

However, in Jun'21, the conversion spread dropped by 25% m-o-m in Durgapur and by 3% in Raipur.

Today, (4 Aug'21), the conversion has been recorded at INR 3,250/t in Raipur and INR 2,700/t in Durgapur.

Reasons behind falling margins

The conversion in Raipur was higher compared to Durgapur as demand was better there with a couple of export deals concluded by renowned mills in central India.

In Durgapur, the conversion gap was lower owing to lock down restrictions in Jun-Jul'21 due to a surge in the number of Covid cases. Also, heavy rains in the neighbouring regions negatively affected finished steel demand in Durgapur. Thus, most of the plants largely supplied billets to north India to meet semi-finished steel demand due to scrap shortage in the region, especially in Punjab.

What may happen?

The margins of wire rod mills are likely to remain volatile in Jul'21 due to seasonally subdued demand as well as moderate supply in the spot market.

Also, unclear global trends are likely to keep wire rod prices volatile in the domestic market as scrap prices in international markets dropped recently, while billet prices remained strong.