India's steel price index drops after 7-week bull run

• Liquidity crunch forces buyers to go slow
  
  
• Demand revival from China, Europe tepid
  
  
• Turkey quake hits trade sentiments, outlook uncertain
  
  

Morning Brief: The India Steel Composite Index showed a drop after a seven-week or two-month uptrend. It closed almost 1% down for the week ending 10 February, 2023 at 156.70 points (158.20 points in the previous week). This level was last seen around end-January, 2023.

Both flats and longs showed a dip. The India Flat Steel Composite Index edged down a negligible 0.57% to 157.20 (158.10). But the India Long Steel Composite Index showed a slightly sharper drop of 1.30% to 156.20 (158.60) points w-o-w, in keeping with SteelMint's predictions of a possible further correction in the same in the week under review.

Factors pulling down the index

1. Buyers resist higher offers amid liquidity crunch: The market, especially the trade segment, showed some resistance to the continuous price hike for seven weeks in a row and transaction volumes have thinned. Sources indicated that as prices rise, transactions invariably start slowing down and this time was not any different. Last week, buyers especially in the secondary segment, were already found resisting the hikes.

In fact, market sources say that when prices were on the lower side, the project developers had bought in considerable volumes and now they are satiated and averse to returning to the market with shopping bags. Liquidity is an issue especially since the financial year is drawing to a close, and discouraging buyers from making commitments.

2. Lukewarm demand from China, Europe: Revival in demand from Europe and China have fallen short of expectations. The market expected a demand spurt from China post-Covid surge and also from Europe after the year-end holidays. But, the European market is extremely quiet since all clients have returned from the holidays. Mills are unable to get bookings as most customers had restocked by the end of November last year, in a bid to stay ahead of the rise in raw material prices. Although export prices are not bad, the volumes are thin from Europe, complain mills.

"The scenario emerging out of China is somewhat similar with demand a tad weak still," rues an exporter.

The tepid global demand scenario is also pressuring Indian domestic prices.

3. Turkey earthquake disrupts global trade: The devastating earthquake in Turkey has shaken the global trade sentiments for the time being. The earthquake, that hit southeastern Turkey and northern Syria on February 6 damaged Iskenderun Port. This will hamper trade from the region especially since mills here are facing energy supply disruptions amid the devastation which is impacting production. Market players are thus in wait-and-watch mode, amid slowed trade.

4. Large mills may offer rebates: The price gap between larger and smaller mills has widened considerably. IF-route players are offering rebar at INR 53,000-54,000/tonne whereas the primary mills are offering in the vicinity of INR 64,000/t. The gap has widened to INR 8,000-10,000/t from a narrower INR 3,000-4,000/t some time ago and the project segment is unwilling to absorb such elevated price levels. This fuels the prospects of rebates from mills in a bid to lure back buyers.

Outlook
Under the present circumstances, the outlook is unpredictable and challenging. Some players believe that supply from Turkey will rise in the near term as it battles the natural disaster although later steel supply will become limited as it will have to enter a post-quake reconstruction phase.

No one is hazarding any guesses on the direction raw material and energy prices will take from here.

On the other hand, it seems Europe managed to avoid a recession in 2022 and even in January. The situation looks better than expected in Europe and the US.

Thus, the short-term outlook on domestic prices is uncertain.

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.