Indian weekly steel price index stable; market expects correction in flats prices

• Flats continue to face challenging times
  
  
• Input costs, infra demand keep longs supported
  
  
• Mills keen to secure export volumes, prices not a factor at present
  
  

Morning Brief: The India Steel Composite Index remained almost flat for yet another week, rising a negligible 0.4% to close on 2 December at 146.10 points (145.50 points in the previous week).

The flats index dipped a marginal 0.70% to 145.70 (146.70) points. Longs upped by 1.50% to 146.40 (144.30) points w-o-w.

Factors keeping steel index flat

If the export tax removal had failed to excite the steel market in the previous week, the sentiments remained similar in the week just ended.

Indian mills may cut flat steel prices for Dec
Flats prices are undoubtedly under pressure. There are various factors which are weighing on this segment. First, imports are a threat even if not of alarming proportions. An end-user source informed SteelMint it is importing hot rolled coils (HRCs) and unless its domestic supplier (a tier-1 mill) brings down its prices to INR 50,000/t levels, it will continue to eschew domestic material. The current price differential of around INR 7,000/t between imported landed and domestic HRCs is luring buyers to the former.

Secondly, exports are still very low. Thus, mills are not getting the bandwidth to increase prices in the domestic market. Globally, sentiments are still down and importing countries are not really coming forward to buy much of finished steel, a key factor failing to pep up the export scene post-duty removal. Mills are reaching out to overseas customers even if there is a gap in realization of INR 5,000-6,000/t between export and domestic offers.

Thirdly, mills are highly likely to reduce their flats prices for early December sales. In fact, the market buzz is that HRC-CRC prices may have already been reduced although no official announcement has been made by the mills yet. It was overheard that HRC-CRC prices will soon see a reduction by INR 1,000-1,500/t and rebar is to be rolled over. Effectively, on a m-o-m basis, HRC prices would be taking a reduction of around INR 3,000/t and CRCs, INR 5,000/t in early December.

"HRC-CRC prices likely to correct and rebar is likely to be rolled over," emphasized a trade-level source.

Longs supported by rising costs
The index inched up a slight 0.4% mainly on account of the uptick in secondary sector rebar prices. However, more than demand, it is the cost push that is keeping longs prices supported, especially in the secondary sector. With iron ore and pellets exports having resumed, they are bracing for a rise in input prices.

But, infrastructure-driven demand is also keeping rebar supported as projects near year-end deadlines.

Outlook
The expected price cuts from mills will nudge down the steel composite index in the current week. Resultantly, trade-level flats prices will fall on cue from the mills, SteelMint understands.

In exports, mills are not exactly chasing bookings, but they are keen to secure volumes if offers match or are a little lower compared to domestic. "If the mills secure good volumes, in a trade-off, they will be willing to work around their profit margins a bit," a source confided.

With crude steel production sustaining at over 9.5 mnt, many say inventory pressure will prevail in Q4.

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.