Indian steel index drops to over 2-year low; but global price uptick spells good news

• Longs slide on coal, sponge prices
  
  
• Flats stable, export offers see uptick
  
  
• China output cuts, demand to benefit Indian mills
  
  

Morning Brief: The India Steel Composite Index fell to an over-two year low for the week ending 14 July, 2023. W-o-w, the index dropped 0.9% to 140.90 points. The last time, the index dropped below this level was on 26 March, 2021 (136.80).

While the India Flat Steel Composite Index remained almost flat w-o-w at 146.10 points (146.20), the India Long Steel Composite index lost almost 2% to close at 135.90 points (138.40). This too is nearly a two-year low since such levels were last seen on 24 September, 2021 (135.70).

As can be gauged, it was the long products slide that impacted the index downward sharply.

Why did long steel prices slide last week in India?

Longs

Higher availability of domestic coal, cheaper sponge: Domestic coal availability to the non-power sector has risen with an increase in Coal India Limited's (CIL's) production by over 12% in FY2022-23, the fastest growth rate in the last few decades. This has allowed CIL to allocate higher volumes for e-auctions compared to the usual. It has also projected higher production of 780 mnt this fiscal.

CIL subsidiary SECL's e-auction offerings, for instance, have increased a whopping 508% in April-July, 2023 to 9.38 mnt against a mere 1.54 mnt in the same period in 2022. That apart, prices across G7-G15 categories have fallen 1-8% m-o-m in July.

Higher and cheaper coal availability have pressured down induction furnace steel prices.

That apart, with scrap availability tight of late, smaller mills are falling back on sponge iron. Rourkela sponge prices fell by INR 900/t w-o-w on dull finished demand.

Price gap between BF-IF rebar narrows: With tier-1 mills having reduced longs prices by as much as INR 3,000/t ($37/t) this month, induction furnace mills had to follow suit, or else risk buyers preferring tier-1 products. IF-route prices dropped by almost INR 900/t ($11/t) to INR 47,100/t ($574/t) from INR 48,000/t ($585/t) levels w-o-w.

Meanwhile, trade-level prices of BF rebars continued to slide downwards amid weak demand. Prices dipped further by INR 400/t ($5/t) w-o-w to INR 51,200/t ($624/t) exy-Mumbai -- the 23rd consecutive week of decline.

Project segment offers were heard at INR 49,000-50,000/t ($596-609/t) FOR Mumbai.

Overall, demand in this ongoing monsoon season has thinned down and mills are saddled with inventory.

Muted global sentiments: That apart, global sentiments in longs are also muted. Recent Indian billet export tenders received lower bids and were cancelled. Expectations were for above $500/t whereas the bids hovered at $475/t FOB.

Globally, the billet and scrap market remained dull as Turkiye witnessed a drop in semis and finished prices.

Flats

No fall from current levels, no discounts: Prices of flat products remained stable as tier-1 mills have communicated that prices have more or less bottomed out and they will not be able to offer discounts either.

This had a spin-off effect on trade-level prices of hot rolled and cold rolled coil prices which remained range-bound last week. Distributors did quote higher amid the demand-supply mismatch. But need-based procurement in the spot market kept prices from fluctuating.

Mills opt for maintenance shutdowns: Production cuts are in the offing as some tier-1 mills are opting for maintenance shutdowns to suck out some production and restore the current demand:supply imbalance.

Limited export allocations amid supply correction: Since most large mills are going under maintenance, there will not be much allocations for exports now, SteelMint understands. This will help to increase export offers. "Whatever export trade action was slated to take place, has happened. Now there will not be much traction in this space. Plus, export allocations will be less because of the maintenance factor. Mills are expecting higher prices for whatever limited volumes they are offering," said a source.

Mills have already hiked EU offers by $5-10/t CFR, as they sensed buyers concluding bookings to avoid shortages and logistical problems in September despite overall dull demand.

Imports not viable now: HRC imports, which had been a huge bother sometime back, are not viable any more as globally prices have strengthened, which is the only comforting factor at present. For instance, major mills like China's Baosteel and Vietnam's Formosa have raised prices m-o-m by $14/t and $15/t respectively for August sales.

Outlook

Indian mills are likely to benefit from the uptick in global prices. They were already heard trying to push up HRC export offers by $20-25/t next week.

That apart, Chinese production cuts and a rise in home demand will also benefit Indian steel-makers who may capture export markets like Southeast Asia and Middle East. This will positively impact domestic prices, especially of flats.

The India Steel Composite Index is assessed on a weekly basis, every Friday at 18:30 IST, as per the weighted average prices based on manufacturing capacity and production.

SteelMint considers the Composite Index with the base year being 3 January 2020 (financial year 2019-2020) and the base value as 100. The Composite Index does not give the absolute price but a trend of the market. The Indian steel industry is broadly classified into the BF-BOF and the electric/induction furnace routes. Keeping this broad classification in view, SteelMint proposes to release the Composite Index by considering both production routes by manufacturing capacity and the production weighted method to compute the index for India.

For details click to view the methodology document.