India's steel index stable w-o-w; longs set to fare better against flats

• Project segment demand keeps longs supported
  
  
• Exports turn tepid again, keep flats subdued
  
  
• Turkey reconstruction may positively impact India's longs prices
  
  

Morning Brief: The India Steel Composite Index remained stable w-o-w after two months of a fair amount of volatility. It closed down a negligible 0.1% for the week ending 18 February, 2023 at 156.60 points (156.70 points in the previous week).

The India Flat Steel Composite Index edged down 1.3% to 155.20 (157.20). But the India Long Steel Composite Index was up 1.10% to 157.90 (156.20) points w-o-w.

Factors keeping the index stable

Longs less under pressure

1. Project segment prop: Long steel received adequate support from the project segment last week. Developers have been proactively buying in a bid to comply with project deadlines ahead of the closure of the fiscal year. This sustained the price momentum last week.

2. BF-IF route rebar gap widens: Moreover, longs were further supported by the fact that the price spread between the blast furnace and induction furnace routes have widened by a considerable INR 10,000/t. If BF route rebars are at INR 63,000-64,000/t levels then IF-route are nudging INR 53,000-54,000/t. "Obviously, this kind of a gap is luring buyers towards the secondary sector because of the price viability," informed a source. The secondary mills command 60-65% of the longs market. Thus, the buying support kept prices buoyant.

Flats feel trade tremors

1. Exports become subdued once more: Global trade too is feeling the tremors of short-to-medium term changes post-Turkey's earthquake. Globally, exports have become quiet once again. SteelMint's HRC export index, in its last assessment on 14 February, fell by $7/t as buyers awaited market clarity.

There were expectations that the export market would rebound post-removal of the 15% duty. However, the pick-up was not as per expectations. Even if some cargoes have been shipped to the European Union, demand from Southeast Asia - traditionally India's largest export destination for flats - has been lukewarm, possibly because the Indian offers are lower by almost $50/t compared to China's. Naturally Southeast Asian buyers are preferring Chinese HRCs or buying comparatively cheaper domestic material.

2. Trade segment feels liquidity pressure: Moreover, the trade segment seems to have completed its restocking and displayed little action since the past few days. Market participants are feeling the pressure of a liquidity crunch with the financial year on its last legs which dampened buying. Consequently, hot rolled coils in the trade segment were under pressure and lost almost INR 3,000/tonne (t). "These levels are likely to sustain, but a lot of restocking is not expected in the near term," observed a market source.

But, domestic demand is not a washout, confirmed the source, adding that, "Yes, supplies in flats may be a little higher compared to demand, but there is decent demand despite the liquidity issues."

It may be recalled Indian domestic demand was strong enough to absorb the 8-odd million tonnes that did not get sold as exports in calendar 2022.

Outlook
Turkey's post-quake reconstruction could have far-reaching impact on prices of Indian steel, especially longs, in the short to medium term.

Turkey may need to revoke its import duty on billets if it has to increase its overseas procurement of the same. Such a move from this quake-ravaged country could keep Indian billets and longs prices supported.

On the other hand, if Turkey increases its ferrous scrap imports to push up its crude steel production - since post-quake reconstruction would be a steel-guzzler - then global scrap prices may show an uptrend. This, in turn, will influence upwards India's domestic scrap prices. In a cascading effect, long steel prices from IF mills (major users of scrap in feed) could rise.

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.