India's HRC-rebar spread in negative zone for 4 consecutive months. Short term looks bearish

• BF-route rebar falls steeper 7% compared to HRC
  
  
• HRCs, plates prices challenged by surging imports
  
  
• Prices may trend lower as buyers wait and watch
  
  

Morning Brief: The HRC-rebar spread has eased considerably since narrowing to its lowest in May 2024. However, rebars continued to be priced higher than hot rolled coils (HRCs) in July 2024, keeping the spread in the negative zone for four months in a row. However, in July, the spread improved to -INR 1,100/tonne (-$13/t), from a peak of -INR 4,200/t (-$50/t) in May and INR -3,600/t (-$43/t) in June, as per data compiled by BigMint.

Data revealed that in July, benchmarked rebar (12-32mm, BF-route, IS 1786), fell a sharp 7% m-o-m to INR 53,400/t ($638/t) from INR 57,400/t ($686/t) in June. But HRCs (IS 2062, 2.5-8mm) fell a shallower 3% m-o-m to INR 52,300/t ($625/t) from INR 53,800/t ($643/t) in this period. However, even after the slide, rebars were costlier than HRCs. Normally, HRCs are sold at a premium of around INR 4,000/t ($48/t) to rebars.

Factors that influenced the spread in July

BF-route rebar continues to see dull demand: Benchmark blast furnace-route rebars fell more sharply, by a steep INR 4,000/t ($48/t) m-o-m compared to HRCs, which declined a much milder INR 1,500/t ($18/t). This movement eased the spread somewhat. Rebar prices have been in a free-fall since the last three months on the back of persistently low demand. The expected post-election turnaround in demand did not materialise since it dovetailed with the advent of the monsoon across India which slowed construction activities amid a sustained liquidity squeeze. The recently-announced Union Budget also failed to inject any new-found enthusiasm amongst buyers. They have moved to the side-lines, waiting for prices to fall further. Some were even heard to have cancelled bookings in anticipation of further price declines.

IF rebar falls to over three-year lows: Similar sentiments gripped the induction furnace rebar market, which enjoys 65-70% share and obviously has a heavy pricing influence on the BF material. Buyers here too were cautious, avoiding bulk purchases despite the discounting from sellers. In fact, IF rebars fell to a three-and-a-half year lows in the last week of July, pressured by lack of offtake in a season characterised by rains and dull demand.

M-o-m IF rebars fell 7.5% to INR 46,715/t ($558/t) from INR 50,512/t ($603/t) in June.

Plus, the recent NHAI show-cause notice to IF mills on quality maintenance, is taking a toll on rebar offtake too.

Inventories are idling for 12-15 days against a much lower 6-8 days around April.

Weakness in global longs market: The weakness seen in the global longs market has also impacted Indian rebar prices. With China actively pushing its billets and other longs into global markets, other suppliers are finding it a challenge to sustain their trades. As per a source, the weakness in Asia is continuing to spread to the rest of the world.

Flats under pressure from surging imports: In flats, the single-most cause for worry was the imports surge from Vietnam and China, which continued to keep domestic prices under severe pressure in July. India became a net importer of steel in the first quarter of financial year 2024-25 (Q1FY'25) while hot rolled coil and plate imports are expected to surge around 85% in the second quarter (July-September) of FY'25. In June, imports surged over 20% m-o-m.

Domestic sourcing was dull as buyers had the option of cheaper imports.

No export offers for three consecutive months: The exports arena lacked excitement with Indian mills staying away for three months in a row from May-July. This can be attributed to dull demand, domestic maintenance shutdowns, production cuts and unviable export offers. China has been spoiling Indian mills' export prospects for months now with their offers declining from around $575/t FOB in January to as low as $512/t FOB in July 2024.

Outlook

Indian steel prices are expected to trend lower in the short term amid the challenges listed above. A sliver of sunshine may appear post-the monsoons in both longs and flats. In flats, the imports pressure may start easing from October due to a few factors. One, Chinese mills are getting hurt as some of them had sold heavily and cheaply to Vietnam. The latter, in turn, sold to India even cheaper, which ultimately limited the Chinese mills from selling in large volumes to India. This led the Chinese Customs to crack down in June on steel exports. Two, Vietnam's export prices have reduced so much that its domestic mills are hurting now. Plus, flats may see some festive buying October onwards, which will support prices.