Indian steel market becomes quiet post-restocking; what to expect in the short term?

• India steel composite price index flat w-o-w
  
  
• Buyers complete restocking last month to pre-empt Oct price hikes
  
  
• Demand lower as compared to the last year, claim trade channels
  
  

Morning Brief: It seems the market is entering a quiet period at least till Diwali. The India Steel Composite price Index bears testimony to this premise. It closed flat at 153.60 points (against 153.10 points in the previous week) for the week ending 7 October, 2022. The longs and flats indices both remained stable w-o-w. Longs closed at 155.7 points (155.40 points in previous week) and flats at 151.40 points (150.70 points in preceding week).

It may be mentioned that after a nominal price hike of around INR 500/t in flats in end-September and about INR 1,000/t in longs, mills opted to raise HRC prices by INR 1,000-1,500/t and rebar by around INR 1,000/t for early October dispatches.

Why has the market fallen silent?

1. Buyers refuse to accept early Oct price hike: End-users and trade channels restocked just as prices started inching up in end-September and thus there will likely be no buying in the short term, sources informed SteelMint. In fact, if mills do not find takers for their products by mid-month, then they may have to resort to discounting, chances of which are high. One buyer indicated that it would approach mills shortly, seeking such rebates.

Demand is down by 50% in October y-o-y, sources say, adding that only need-based buying is the order of the day because of inflationary pressures.

"I do not see a spike in demand next week as end-users are well-stocked," confided a source.

2. Festive season to keep trade subdued: The week ended 8 October saw the country celebrating Durga Puja, Ram Navami and Dusshera which weakened buying activity and led to some inventory pile-up, especially with the induction furnace mills, which pinned prices to their week-ago levels. Further, traders expect the market to fall silent in the Diwali week too.

3. Mills see inventory build-up: Larger mills are experiencing an inventory build-up. India's crude steel production provisionally rose to over 10 million tonnes (mnt) in August-September as mills returned from maintenance shutdowns - a factor that could encourage discounted offers, and which would ultimately nullify the price hike in early October.

The 15% export duty, slapped since end-May, has aggravated the inventory situation. Exports plunged to 0.50 mnt in August against the average 1.5 mnt/month and are expected to remain at such levels till the levy is withdrawn. With home sales already sluggish, mills do not expect the domestic market to absorb the 20-odd mnt allocated for exports last year.

Smaller mills too saw a bit of inventory pile-up especially in India's eastern region in the festive week.

4. Rupee depreciation: The Indian rupee depreciated to an all-time low of over 82 to the dollar. This will make imports costlier and drive end-buyers towards domestic material, a sentiment that kept prices stable as well. "Imports will get delivered two months later and by then, who knows, the rupee may depreciate further. We cannot risk imports now," informed another source.

Outlook
Prices are not likely to fall from current levels for primary mills while they would be wary of further hikes in a quiet market and resort to rebates to clear inventory.

But, having said that, sentiments are still upbeat that the third quarter may see a demand revival, albeit a cautious one, as indicated by the latest RBI consumer sentiment survey. It says, overall sentiment remains cautious although the ongoing festive season may see better sales compared to the pandemic years.

But mills may not ideally brace for any pent-up demand release, industry infers.

Where the smaller mills are concerned, SteelMint understands that demand would be better than in the last fortnight, as some pre-Diwali sales may happen. But prices would remain volatile in tandem with demand ebb and flow.

The India Steel Composite Index
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.