Indian pig iron prices hit 3-month low as steel market reels under export duty impact

• Low domestic appetite for finished, and thus semis, keeps pig iron prices low
  
  
• Lower capacity utilization from electric furnace mills lowers pig iron demand
  
  
• Export realization drops post-export duty but sellers look for volumes
  
  
• Supply injection may further dent prices, trigger exports at lower offers
  
  

Morning Brief: Indian pig iron prices have fallen to their three-month lows, post-the government's slapping of the 15% export duty, reveals data maintained with SteelMint. The latest benchmark Durgapur assessment shows that steel grade prices have shaved off by a sizeable INR 4,200/t ($54/t) to INR 47,800/t ($616/t) as on 26 May'22.

On cue, Steel Authority of India's latest auction bid prices of 6,000 tonnes (t) of basic grade pig iron from its Rourkela Steel Plant (RSP) also fell by INR 6,500/t ($84/t) to their four-month low of INR 44,300/t ($571/t).

Why are pig iron prices touching record lows?

• Drop in steel prices: SteelMint's benchmark Raipur billet index slipped to its four-month low a couple of days back and slid further down yesterday amid low domestic demand and offtake of finished steel. The government's export duty imposition on iron ore, intermediaries and some finished steel items has jolted the market across the steel value chain from raw material to semis and finished. Buyers expect billet prices to fall further as both semi and finished steel inventories have risen. In billets, buyers are only lifting material booked previously, albeit at higher prices.
  
  
• Drop in prices of other substitutes: Both scrap and sponge, competing raw material for the electric furnace mills, have also dropped, putting pig iron further on the backfoot. Benchmark melting scrap prices (Mumbai, HMS 80:20) prices have fallen almost 7% since the duty announcements from INR 40,500/t ($522/t) on 23 May to INR 37,800/t ($487/t) on 26 May. Similarly, sponge prices plunged recently. Nil transactions were recorded a few days back in CDRI. The SteelMint Rourkela sponge iron index has been falling consistently for the past few days to close at INR 31,750/t ($409/t). As with scrap and pig iron, so too sponge buyers stayed away in a falling market, expecting prices to drop further, in an after-effect of the steel-related export duty impositions.
  
  
• Lower capacity utilization of EAF/IF units: The secondary sector, dominated by the electric furnace (EAF and IF) mills, have cut production by around 30% since the last couple of months or so, burnt by the high thermal coal and power prices, as well as unstable power supply and frequent outages, all of which were adding to the cost of production. This has naturally reduced pig iron offtake
  
  
• Export realizations less viable after 15% export duty: Pig iron sellers are saying the 15% export duty has made exports less viable. However, Vedanta floated a 50,000-t export tender for June shipment.
  
  

The last export price indication was $700/t FOB. Post-the 15% export duty, export realisations are working out to around INR 44,000-44,500/t ($565-572/t) after deducting the 15% export duty, port expenses and local freight in rupee terms, which is actually lesser than the domestic prices. But home demand being weak, sellers are exploring export orders at present, particularly in larger volumes.

Outlook

Pig iron supply in the spot market through the integrated plants improved since May. Volumes are expected to go up further due to lesser demand for finished steel and reduced export realizations.

In addition, a couple of private plants also resumed operations and supply in the domestic market in May - Kajaria Iron Company and Rashmi Metaliks, both based in the eastern region. A major pig iron producer based in southern India - Kirloskar Ferrous - is also expected to resume operations of its MBF-2 next month, which was under under maintenance shutdown since February 2022.

Injection of more supply may put further pressure on pig iron prices amid sluggish domestic demand. This scenario may trigger exports, even at reduced price parity with domestic.