India's HRC-rebar spread widens to five-month high amid inventory glut

• Rebars fall more sharply m-o-m against HRCs
  
  
• Tepid infra demand, liquidity crunch hit rebars
  
  
• Will HRCs see improved export sentiments?
  
  

Morning Brief: The spread between benchmarked hot rolled coils (HRCs) and blast furnace-route rebar widened to a five-month high, at INR 2,500/t tonne (t) ($30/t), in January 2024, reveals BigMint data. The gap widened mainly on account of the sharper fall in rebar prices compared to hot rolled coils (HRCs).

The benchmark blast furnace-route (BF-route) rebar, ex-Mumbai, fell a deeper, almost 4% in January to INR 51,800/t ($624/t) compared to INR 53,800/t ($648/t) in December, 2023. On the other hand, the trade-level HRC, ex-Mumbai, fell a tad less, by around 1.50% to INR 54,300/t ($654/t) from INR 55,100/t ($664/t) in the preceding month.

Factors that widened the spread

Rebar

Infra demand turns tepid: With most mega infrastructure projects completed or nearing closure ahead of the key elections in 2024, demand for rebars and other construction steel products has dropped sharply. Some new one have been announced recently. These include the INR 4,000-crore worth of projects in Kerala, and an allocation of INR 13,810 crore for West Bengal in the interim railway budget, 2024-25. However, all recently-announced projects will need time to translate into real-time steel demand.

Project developers did need-based procurements. Bulk purchases almost halved.

As a result, January saw rebar inventories lying with tier-1 mills rising 8% or an additional 40,000-50,000 t. In fact, levels crossed 600,000 t from December 2023 levels. Mills are uncomfortable as the usual volumes hover at around 300,000 t.

Market spurns price hike: Tier-1 mills had announced nominal price hikes of INR 500-1,000/t ($6-12/t) in end-January. However, these were spurned by the market, with buyers staying away.

Ban in Delhi-NCR hits construction steel: The pollution-related ban on non-essential construction has taken a toll on steel demand According to a report by property consultants Anarock, NCR stands out as the frontrunner among India's top seven cities in terms of deliveries in 2023, reflecting a staggering 97% y-o-y growth. Thus, the ban in such a huge market is obviously having a cascading impact on steel.

Influence of IF segment: Since the induction furnace (IF) segment enjoys the lion's share of 65-70% of the Indian rebar market, any trend here has a direct influence on its BF counterpart. IF mills too nursed inventories that rose 25-30% m-o-m in January. Although m-o-m prices remained stable at INR 48,700/t ($587/t), mills here resorted to discounting to move material off their shelves but were able to sell only 50% of their production amid a sustained liquidity crunch.

The dull IF price movement and offtake also had a rub-off effect on BF rebar.

HRC

Imports keep domestic prices under pressure: Demand for HRCs were also need-based from end-users but the healthy import figures kept mills under pressure. For instance, BigMint data shows, bulk HRC and plate imports in January touched over 660,000 t, surpassing December 2023 levels of 458,120 t. As per the JPC report, over April-January, 2024, imports rose 35% y-o-y.

The price viability encouraged imports, despite the dull demand. Indicative landed prices from FTA countries were over INR 4,000/t ($48/t) less at INR 53,685/t ($647/t) in rupee parity against the domestic INR 57,800/t ($696/t) in January.

Embattled mills tried to fight off imports by either rolling over list prices or effecting a marginal drop in January while trade-level prices declined.

Additional supplies weigh down mills: In a double whammy additional HRC supplies put further pressure on prices. NMDC's newly-commissioned plant was heard producing 60,000 t of HRCs, which were making their way into the traders' market. Further, some amount from JSPL's recently-commissioned 5.5-mtpa HSM at Angul added to supplies amid decreased demand.

Exports offer no excitement: Exports continued with their dull trend. With the absence of Middle East and Vietnam, the India HRC export index could not be assessed in December 2023 but January averaged $601/t FOB. While no offers were floated to the Middle East in December, January 2024's averaged $637/t CFR. Offers to Vietnam resumed after a hiatus of six months at $621/t in early-January but only end-month saw a parcel of 20,000 t being sold.

The European Union offered slight excitement. M-o-m, offers rose a nominal $12/t to $712/t in January ($700/t in December 2023).

Outlook

Domestic longs prices may remain stable, having taken a recent price hike of INR 500-1,000/t ($6-12/t) in late-January. Flats may be pressured by the rising cost of iron ore and coking coal on a quarterly basis.

But, as per the market grapevine, February may see some production calibration as some mills may cut output/undertake maintenance.

Mills may get more aggressive in exports to offset the dull demand at home.