Indian large mills raise prices: Longs up INR 3,500/t, flats by INR 1,500/t for early Oct

Cost push, power crisis forces Indian mills to raise prices

Finished steel prices, vindicating an earlier report by SteelMint, have gone up. Long products prices from the primary mills have increased by around INR 3,500 - 4,500 per tonne (t) ($50/t) and flats by INR 1,500-2,000 per tonne ($24/t). SteelMint had earlier mentioned that the quantum of price hike in longs would be higher than in flats.

Blast furnace route rebar prices have surged by up to INR 4,500/t ($55/t) for Oct'21 deliveries. Current offers are at INR 56,000-56,500/t ($750/t) exy-Mumbai, excluding the 18% GST, a jump from the September levels of INR 52,000/t ($695/t).

In comparison, offers from the smaller mills, which are primarily dependent on sponge iron and scrap, have increased more sharply, by INR 5,000-6,000/t ($67-80/t), over the last 15 days to INR 54,000-55,000/t ($722-735/t) ex-Delhi.

In flats, prices have taken off by INR 1,500/t ($31/t) from average September levels of INR 65,400/t ($895/t) in HRCs and INR 73,500/t ($1006/t) in CRCs. Prices are minus the 18% GST.

Why is the price increase in longs higher than in flats?

The major factor behind the hike is rising coal and coke prices. The long products market is pegged at 45 million tonnes (mn t) in which the share of primary mills is 30-35%, the balance 60-65% held by the largely sponge-based players.

Factors pushing sponge cost:

• Sponge iron is heavily dependent on coal. But with the runaway coal inflation, cost of production of sponge units has shot up by an average INR 4,000-4,500/t ($58/t) over the last one month, despite factoring in lower iron ore prices.
  
  
• South African coal has signed sponge units, rising 102% from $99/t FOB in May'21 to $200/t FOB in Sept'21. Prices are surging because of Chinese buying and supply issues in both South Africa and Indonesia.
  
  
• As a result, Coal India is stretching to divert more than 90% of its coal to the utilities, leaving sponge iron and other secondary mills starved of the fuel, raising the cost of production, a scenario that strongly supports the price increase. "Prices cannot be reduced because of the high cost of production, at least in the short to medium term," said a source.
  
  
• The looming power crisis raises the spectre of production cuts. Outages could hit power-intensive IF/EAFs, while ballooning costs could hit all mills, leading to a possible production curtailment, and keep prices supported.
  
  
• Indian prices of silico manganese, required in mild steel making, have surged 88% from around INR 66,000/t ($904/t) in February to the present INR 1,23,000/t-plus levels ($1,684/t) on ex-Raipur basis.
  
  

Flats wait and watch

On the other hand, flat products have more sophisticated applications and command a premium.

The price rise is more moderate because mills are still maintaining higher margins and can absorb the higher cost of production. Coking coal is booked through advanced quarterly contracts, which offer some buffer.

However, with quotas exhausted, congestion at ports and substantial inventory in transit, exports prospects to Europe have receded till January. But mills are waiting and watching.

Outlook

As per SteelMint's assessment, finished prices will not fall and may continue to remain at these levels. But production curtailment would also have a direct impact on prices of raw materials and metallics like iron ore, scrap and sponge iron and reduce coal consumption.

The primary mills are assessing the market since the gap with secondary longs prices has narrowed. They may opt for another hike depending on market dynamics - since there is some resistance to the hikes, especially from the secondary mills' customers.

However, China will open up next week and may change the market matrix. On one hand, the coal crisis is driving it to procure the fuel from across the world. On the other, the Evergrande collapse has cooled down its realty demand and may impact construction steel sales. Both factors will weigh on Indian finished steel prices.

d-o-d changes indicated against 30 Sept'21. W-o-w changes indicated blank due to holidays