Indian IF-route wire rod manufacturers conversion spread dips

The margins for converting billets into wire rods (also called conversion spread) dropped by 21% and 15% in Raipur and Durgapur respectively in Aug'21, as per SteelMint's assessment.

The monthly average conversion spread was at around INR 3,010/tonne (t) in Raipur and INR 2,710/tonne (t) in Durgapur throughout the month. However, in Jul'21, the conversion spread increased by 9% in Raipur whereas in Durgapur, the same had remained stable m-o-m.

Yesterday, (6 Sep'21), the conversion has been recorded at INR 2,900/t in Raipur and INR 2,500/t in Durgapur on.

Analysis

In Durgapur, the conversion gap was lower owing to limited sale in the market during the period Jul-Aug'21. Also, heavy rains in the neighbouring regions negatively affected finished steel demand in Durgapur. Thus, most of the integrated plants were largely noticed supplying billets to north India to meet semi-finished steel demand, especially coming from Punjab due to scrap shortage.

Meanwhile, in Raipur, a constant volatility in billet prices till the third week of Aug'21 on account of higher sponge iron offers resulted in a fall in the margins of wire rod manufacturers as offtake of the material was also poor due to seasonal slowdown.

What may happen?

It is believed that, margins of wire rod makers are less likely to dip further as they will not be able to sell material against prevailing margins. Bullish outlook on conversion is also limited as demand is expected to remain subdued due to prevailing sluggish trends globally, which has also affected domestic and exports demand of the primary mills.