Indian Rebar Prices See INR 750-1,000/MT Revision; Will it Sustain?

Almost all the major private steel mills have increased their re-bar prices by INR 750-1,000 ($10.5- $14) per tonne for November onwards. However state-owned units are yet to declare their prices.

JSPL and JSW have officially announced the price hike, whereas others are expected to follow suit. Large plants have cleared inventories in September (which is also evident from the quarterly numbers).

Electrosteel Steels, now part of the Vedanta Group, is looking to increase prices soon this month, as per sources. The price increase will be in line with market players. "We expect revision of at least INR 1,000/MT in this month," the source informs. Electrosteel Steel's production of rebars is ~600 KT per annum.

Current rebar prices from large mills are hovering in the range of INR 33,500-34,000/MT (Ex-Delhi) for 12-25mm sizes. Being a commodity, prices vary from market to market. JSPL's current prices are ruling at INR 34,500-36,500/MT.

But is this price hike a sustainable one?

Industry players are saying it is not a "hike" but a price revision and "a seasonal thing". For instance, V.R. Sharma, Managing Director, Jindal Steel & Power (JSPL), says, an increase of INR 750-odd per tonne cannot be called a price hike, because it is too meagre an amount.

"If you ask if the market is in a position to absorb this correction, well, it is a commodity and an increase of INR 750-1,000 per MT is really nothing. I cannot say till how long this price revision will continue but it will depend on the market fundamentals which include key raw materials like scrap prices. How can players who are importing scrap compete in the market if international scrap prices have gone up by USD 30-40 per MT in the last month which roughly translates into a INR 3,000 hike per tonne of scrap?," Sharma asks, giving the rationale for the price correction.

A source with another steel maker says, "I believe the price increase will sustain since we are currently operating at unsustainable numbers."

Says Sharma, "The increase in prices is a normal seasonal revision. There is no rain, the festive season is on its way out, truckers have increased their freight, the steel industry was bleeding for months as we know - the last quarter's results are a testimony to that. Against this backdrop, this price increase is very meagre."

Inventory levels drop with large players

Construction re-bar inventories with the large players (at least with the private mills) have dropped in October to around 600,000 MT which was estimated at 900,000-950,000 MT in September 2019.

Large mills using the BF route produce about 12-13 MnT every year, which is 33% of the total production of bars and rods (rest comes from small and mid-sized mills using the induction route).

Sharma says that demand has picked up and mills are now being unable to meet demand and that they don't have stocks. He adds, in September and August, even in rebars, consumption was stable.

"The only disadvantage was that prices were going down. The prices ruling in October were not really viable from the mills' standpoint. Therefore, this is not a price hike but a price correction," he emphasizes.

Inventories at JSW Steel too have gone down substantially. Speaking about JSW Steel, a well-placed source says, "Inventories have gone down and now that the monsoons are over, demand has also picked up."

As per sources, Tata Steel sold more than 200,000 MT of rebars last month and JSW Steel more than 180,000 MT in October but these numbers could not be confirmed with the respective companies.

For Electrosteel Steels, September demand was "okay" while October demand "was higher than September but not as high as what post-monsoon should be". All sales are domestic.

Public sector long products player RINL says demand is still subdued. According to SteelMint sources, RINL has about 150,000- 200,000 MT of unconfirmed rebar inventories but prices are not expected to increase. Sources also mention that October sales at RINL were better than in the previous month.

Public sector steel giant Steel Authority of India (SAIL), it is learnt, says that demand is moderate but prices look to have bottomed out and there is no news of a price hike while its inventory level is unknown.

Market sources say there is no stock available in the market because the construction segment has used up its existing stocks. When the market is down traders don't buy because they apprehend that if they stock up and prices fall they will make a loss.

And their capital also gets locked up. However, when the market looks up, traders start stocking up because of their confidence that they would be able to sell the inventory in a bullish market. The biggest driver of steel or any other commodity is the trading community. The moment the trading community starts buying to stock up, it is a barometer of demand pick-up.

A source with a large mill, says: "There has been rationalisation of production in some companies and that is why the inventory levels with the channel partners and the companies are now at a comfortable level and we see demand picking up."

Season for demand pick-up

It seems the market is just right for a price correction at this juncture, when the monsoon and the festive season, both of which slow down steel buying, are almost over. Consumption of steel usually increases in the second half of the year because of heightened construction activities. Demand from the machining industry too, the latter being an important component of any infrastructure project and which consumes longs, plates etc, will increase in tandem with infrastructure. Government projects will be flagged off since project awarding generally picks up in the second half. As a result, stockists pick up the material because they see demand remaining high for the rest of the year.

Sharma adds: "Now stockists are very confident that sales will pick up because the rains are over, Diwali is over and they have six months till when construction activities will pick up and remain high. Infrastructure development has to happen. Thus, this is very seasonal. Prices are usually stay depressed till the monsoons and go up post-monsoon."

Another source adds that this month and going forward there will be further improvement in prices with increase in government spending. "I am sure the market has bottomed out and it shall only pick up from here," the source adds.

--By Madhumita Mookerji