Indian pig iron prices corrected by over INR 5,500/t ($71) in last one month. What to expect in short term?

• Pig iron prices drop as Russia plays spoilsport with low offers
  
  
• Dull finished steel demand at home and overseas also dampens sentiments
  
  
• Competing raw material prices drop on lack of finished demand
  
  
• Prices may drop further if Russia sustains cheap offers
  
  

Morning Brief: Pig iron prices have dampened significantly. SteelMint notes these have corrected by more than INR 8,500/t ($109/t) currently to INR 54,200/t ($696/t) from a peak of almost INR 63,000/t seen in the third week of Mar'22. In last one month, prices have come down by INR 5,500/t.

In the last 15 days, globally, prices corrected downward by around $50/t and in the domestic market, the SAIL Rourkela auctions saw a drop of around INR 3,000/t ($38/t).

SAIL's prices also dropped from INR 56,400/t ($725/t) exw in the first week of May to INR 52,500-53,450/t ($674-687/t) -exw in its latest auctions amid high supply and low demand.

Factors pushing down prices

Russia's absence pulled up prices: A key reason why prices shot up in the first place was the Russia-Ukraine war and the consequent increase in export prices of pig iron. The total global pig iron trade comprised around 13 million tonnes in which the combined share of Russia-Ukraine comprised more than 50% at almost 7 mnt. Russia's absence since March created a supply vacuum. This was filled up by other countries, including India, which exported substantial volumes, mostly to the US which was willing to pay higher.

Russia's comeback pressures prices downward: However, Russia has made a comeback into its exports market, and is offering much lower, exerting a downward pressure on global pig iron prices. SteelMint data reveals that recent steel grade pig iron export prices from Russia were at $570/t against Indian origin price indication of $705/t FOB east coast. In general, Black Sea FOB prices have dropped 20% m-o-m to $710/t.

As a result, domestic prices have been showing a downward correction too. Exw-Durgapur prices are down 9% INR 54,200/t from INR 59,800/t ($768/t) m-o-m.

But still the spread with sponge iron is steep.

It may be mentioned that because of the sharp upsurge in pig iron prices, the spread with sponge iron, which had been hovering at around INR 11,000-13,700/t ($141-176/t) in February, before the war began, widened to record almost INR 23,000/t ($296/t) in the last week of March and ranged over INR 20,000/t ($257/t) from the third week of March till the second week of May.Demand for steel subdued: Steel prices have been declining both globally and at home, essentially because of China's lack of buying interest (due to the Covid outbreak, output cuts etc) and Russia's re-entry.

As a result, global scrap and billet prices have also been correcting. Melting scrap export prices to Turkey are down $150/t or 24% to $485/t CNF from $635/t CNF a month back. Billets too, are down almost $120/t CNF Turkey m-o-m to $683/t ($802/t). Domestic sponge iron prices (ex-Raipur) are down 7% to INR 34,600/t or $445/t from INR 37,300/t ($479/t) a month back while domestic scrap also dipped. Naturally, buyers are not too keen to pay higher for pig iron, when competing stockfeeds like scrap and sponge are cheaper.

Coking coal prices drop: Coking coal prices have also corrected from their peak. Australian premium hard coking coal (PHCC) climbed down from a record $671/t FOB Australia in March to $385/t levels in early April, ricocheted back to over $500/t, intermittently touching a few notches below this level to rest at $515/t FOB mid-May.

Pig iron market

India produced 4.8 mnt of pig iron in FY21 of which 1.15 mnt is foundry-grade. In the balance 3.65 mnt, 1 mnt is exported and 2.65 mnt procured by IFs. The installed capacity is 6-7 mnt.

Outlook

There is scope of further downward correction as Russia tries to regain its exports market share. Domestic prices would amount to almost $700/t FOB in dollar parity (INR 54,200/t) against Russia's offers of $570/t FOB. Thus, if Russia keeps lowering offers, Indian pig iron prices may have room to fall further.