Indian billet price index hits 3-month lows in Jun'24; what to expect in coming months?

Morning Brief: Indian billet prices recently underwent a sharp correction. The BigMint Billet Index fell to INR 41,300/tonne ($494/t) (Ex-Raipur), the lowest in the last three months. Prices closest to this level were last seen on 2 April, when the index had hit a low of INR 40,950/t ($490/t). Prices started rising thereafter to hit a peak of INR 45,550/t ($545/t) on 6 May but started dipping thereafter to fall to their current levels.

Billet production rises as power demand eases: Billet production has shown an increase with the easing of the heat wave across India. When, a few weeks back, the country was gripped by an unprecedented hot summer, power demand had peaked. Most mid-sized mills, which typically also produce power, were seen diverting their excess captive power to the grid during that period instead of devoting the same to production of billets. This made sense, since selling the power to the exchange offered better realisations than billets at that juncture.

However, with temperatures across the country abating slightly with the approaching monsoon, demand for power has also started dipping, and so have power tariffs. The mills are back to using their full captive power capacities for producing billets, which has pushed up the volumes. Data tracked by BigMint reveals, India's crude steel production rose around 4% m-o-m in May to a provisional 12.53 million tonnes (mnt) against 12.06 mnt in April.

Demand subdued ahead of monsoons, Budget: Domestic demand for steel, and in a cascading impact, that for semis like billets, has been rather subdued even after conclusion of the general elections in the country. There is a slackness in procurements in the spot market as construction activity is slowing down in the face of the rainy season. Secondly, the market is awaiting the Union Budget for 2024-25, before committing to large purchases. This has led to some inventory pile-up in Rebars and billets amid the recent production glut.

Global demand bearish: Globally too demand for billets and other longs is lagging behind supply for months now. Many feel, the global longs market is yet to see the bottom and this trend is also having repercussions on Indian billets prices. Turkish mills are failing to export at desired offers in the face of the Chinese billets exports onslaught. Demand from the European Union is stagnating while the extension of the safeguard measures for two years is expected to impact billet imports into the region. Overall, prices across-the-board - raw materials, semis and finished - are feeling the heat and India is no longer being insulated from such bearish trends.

Imports of metallics increase amid cost viability: Last month, prices of raw materials and steels traded at a premium to their global counterparts, encouraging domestic buyers to opt for imports. Scrap, and pig iron, procured at comparatively lower prices from overseas, helped to reduce induction furnace mills' production costs, which, in turn, failed to support billet prices. BigMint data points to around 100,000 tonnes of pig iron bookings last month from Russia (60,000 t) and Indonesia (40,000 t). In May, 60,000 t arrived from Russia while April saw no imports. Imported pig iron prices in May hovered lower at $452/t CNF compared to the domestic material's INR 43,600/t ($522/t) from Durgapur. Overall, domestic pig iron prices in May had risen 5% m-o-m. In scrap, import volumes rose over 12% m-o-m in May. Deals were sealed at around INR 35,812/t ($429/t) levels compared to the domestic INR 36,740/t ($440/t).

Exports reach a roadblock: Thanks to the dull global demand scenario, Indian exports of finished steel and billets have hit a roadblock. Indian mills have stopped offering in the export market for months now mainly because of two reasons. One, China is tightening the noose on steel exports across geographies with rock-bottom prices. Two, global demand, as already mentioned, is highly sluggish. Thus, India's steel exports dropped to their six-month lows in May 2024. Billet exports in particular were down 51% y-o-y over April-May, 2024. Flats also dropped 34% and longs, 10%

Inventories have started pilling up because production has risen amid low demand. Thus, BigMint expects production cuts from IF mills across semis and finished products July onwards. This move may bring about some stability in prices of billets especially since, at this juncture, the production cost is higher than the sales prices of billets in some regions. Naturally, this brings into questions the sustainability of some mills. BigMint also feels billet prices may have bottomed out. These may not fall from their current levels, having eroded by over INR 4,000/t ($48/t) in the last few weeks.