India's steel, raw material prices stage smart rally in Oct'24. What lies ahead?

• Chinese stimulus measures positively impact prices
  
  
• Improved steel demand, festive restocking lift prices
  
  
• SA thermal coal bucks trend, HRC stable m-o-m
  
  
• NMDC, OMC auctions boost iron ore by over 20%
  
  

Morning Brief: India's steel and raw material prices witnessed a robust October, with 16 of the 17 commodities tracked trending up and, in some cases, climbing out of the deep troughs of July-September. There were a few reasons for the rally. The key factor was the stimulus package unveiled in China to prop up its ailing property sector. Though the euphoria was short-lived, it led to a sudden spurt in global steel and raw material prices and India was no exception. Secondly, the monsoon finally receded from India, giving way to renewed momentum in the steel market in India. October also marked the onset of the festive season in the country and spurred some healthy restocking ahead of Navratri and Diwali. Thirdly, tier-1 mills' production callibrations allowed them to undertake three consecutive hikes in rebar prices, which also had a positive impact on raw material prices.

Iron ore prices witnessed the highest upswing, with sponge and pig iron following close behind. The steel segment experienced a moderate 5-7% uptrend, except for HRCs, which remained stable. HRC remains a sore point, with prices hovering at almost the same levels as last month's and their lowest this year. The only exception to the across-the-board rise was South African-origin thermal or non-coking coal, which dived by 11% m-o-m.

BigMint goes behind the scenes:

Factors that impacted domestic steel, raw material prices in Oct'24

Coal Contrasting trends emerged in coal.

Australian premium hard coking coal (HCC): Monthly average prices rose 10% to $220/tonne (t) CFR India in October from $200/t in September.

In October, coking coal prices recovered from the slump seen in September, with traders taking advantage of the volatility in the Chinese market. The active response seen in Coal India Limited's latest coking coal auction, with 2.4 mnt booked at a 6% premium, also encouraged suppliers to raise offers.

However, the festive season of Navratri and Diwali weighed on trades, as buying interest cooled in the country. Some cargoes for reselling came into the market, which also exerted pressure on prices.

Non-coking coal: Indexed portside ex-Gangavaram prices of RB3 (4800 NAR) from South Africa climbed up a marginal 1% to INR 7,630/t in October from INR 7,590/t in September.

South African thermal coal prices remained largely stable on subdued buying interest and sufficient stocks at mills. Initially, higher sponge iron prices and positive sentiment in the steel market gave rise to expectations of a boost in procurement. However, demand from India eventually tapered off with the arrival of the festive season, though South African suppliers found support from other nations. The domestic market remained moderately stagnant for the rest of the month, amid unclear price signals.

Meanwhile, CNF Gangavaram prices of the same grade slumped by 11% to $80/t in October from $90/t in September, primarily due to a 7% m-o-m fall in coal vessel freights. Shipping rates from the Richards Bay Coal Terminal (RBCT) eroded to $14.11/t as on 30 October from $15.2/t on 3 October, amid tepid demand for South African coal. In addition, sufficient stocks at ports pressurised inquiries for the route.

Ferro alloys

Silico manganese 60:14: The daily 60:14 grade silico manganese index for Raipur edged up by 4% m-o-m to INR 68,920/t in October 2024 from INR 66,540/t in the previous month.

Early in the month, prices rose following a hike in secondary steel prices amid the recently announced Chinese stimulus measures. Improving demand from domestic steel mills, limited availability of material, amid an increase in production costs for smelters supported the rising trend. However, falling prices of imported manganese ore due to weak demand and oversupply, intercepted a sharper rise in silico manganese prices.

Scrap & metallics

This segment saw minor-to-moderate increases in the range of 2-9%.

Pellet-based PDRI: Prices of sponge iron (pellet-based), ex-Raipur, moved up by 8% from INR 25,510/t in September to INR 27,500/t in October on the back of healthy demand in the steel segment.

However, sentiments remained moderate-to-weak, primarily because of the festive season slowing down manufacturing and construction activities. Although the segment closed the month with a moderate uptick, prices remained volatile as steel demand fluctuated.

Steel-grade pig iron: Offers lifted by 8% in the period under review to INR 39,330/t ex-Durgapur in October from INR 36,560/t in September.

Last month, prices climbed up as two major plants in Durgapur were under maintenance, which led to a shortfall in pig iron availability in the market. Additionally, a supply squeeze in domestic scrap prompted electric arc furnace (EAF) mills to turn to pig iron to fulfill their raw material needs. Demand picked up, leading to an increase in prices.

Domestic melting scrap (HMS 80:20 DAP-Mumbai): Prices touched INR 32,600/t in September, and last month, they recovered by a slim 2% to INR 33,270/t.

In October, improved steel demand and minor price hikes in finished steel boosted domestic melting scrap offers. The market also observed spirited restocking during the pre-festive period, leading to tightened supply. However, confusion over the Reverse Charge Mechanism (RCM) policy and bid-offer disparities limited scrap trade flow.

Imported containerised melting scrap: Similarly, European-origin containerised shredded gained 3% m-o-m at $400/t CNF Nhava Sheva in October against $390/t in the preceding month.

Interest in imported scrap increased gradually due to pent-up demand and a stronger domestic steel market. Buyers sought to restock ahead of the festive season, expecting stronger steel demand. However, as Navratri and Diwali approached, imported scrap demand slowed, with buyers adopting a wait-and-watch stance due to concerns over price volatility and the sustainability of recent price hikes. Additionally, the festive mood resulted in minimal trading, with falling domestic scrap prices further contributing to the caution. This kept prices largely stable m-o-m.

Iron ore

Iron ore fines and pellet prices soared by 16-21% m-o-m in October, boosted by premium bids at the 18 October auction from the Odisha Mining Corporation (OMC) and the two price hikes from the National Mineral Development Corporation (NMDC). At the former, m-o-m premiums surpassed INR 1,000/t ($12/t), while NMDC raised tags by a total of INR 300-1,100/t for October sales.

Fines, lumps: In October, while iron ore fines tags surged by 21% m-o-m to INR 5,250/t (INR 4,350/t), lumps shot up by a higher 24% m-o-m to INR 7,080/t (INR 5,730/t) in Odisha.

Higher premiums at the OMC auction steered the price surge in fines and lumps. Specifically, OMC sold around 1.06 mnt of fines with bids (weighted average) rising by INR 1,250/t m-o-m in the October auction. Additional support came from the pellet, sponge, and finished steel markets, which saw moderate improvements throughout the month. Additionally, lower dispatches from Odisha miners were seen in September, which contributed to a wider supply-demand gap in October.

Pellets: Tags upped by a significant 16% to INR 10,140/t DAP Raipur in October from INR 8,760/t in September.

Pellet prices in central and eastern India surged following the iron ore auction from OMC and the price revision by NMDC. This significantly increased the manufacturing costs of pellets and prompted miners in eastern India to increase prices. Favourable market sentiments in the raw material and downstream steel segments also supported active buying ahead of the festive season.

Steel

The steel segment witnessed a modest uptick across the board, but the degree of increase varied. Sentiments fluctuated, with the increase in iron ore and scrap prices elevating offers, while the Diwali and Navratri holidays brought markets to a standstill.

Billets: Prices rose 6% from INR 38,340/t ex-Raipur in September to INR 40,680/t in October.

The slight hike in prices can be attributed to the rise in iron ore costs, following NMDC's hike in October prices and the jump in bids at OMC's auction, and growing demand in the steel cluster. However, overall, the Indian billet market was largely restrained, influenced by lacklustre demand for finished steel products and cautious buying across the key steel segments. The festive season contributed to reduced market activity, and participants waited for clearer price direction following its culmination.

Rebars, wire rods: Tags of the blast furnace (BF) grade rebar improved by 7% to INR 53,750/t ex-Mumbai in the period under review from INR 50,430/t in September. Meanwhile, the induction furnace (IF) grade picked up by a lower 5% to INR 48,250/t ex-Mumbai (INR 45,740/t). Wire rods (ex-Durgapur) also rose 5% from INR 41,690/t in September to INR 43,740/t last month.

With the southwest monsoon withdrawing from the subcontinent, infrastructure projects were back. Given the gradual elevation in demand and a rise in raw material costs, primary mills lifted rebar offers for three consecutive weeks in October, by a cumulative INR 3,500-4,000/t to take advantage of pre-festive season restocking. Furthermore, material shortages in certain sizes due to maintenance shutdowns at mills and lower inventories, stemming from production cuts throughout the year, kept trade prices supported.

HRCs: Prices of HRCs saw a faint uptick from INR 48,030/t in September to INR 48,220/t in October, nearly negligible if we consider the amount in percentage terms.

Although Indian primary steel producers lifted list prices by INR 500-1,500/t, trade momentum slackened ahead of Diwali, amid weak demand and need-based procurement. Additionally, trading in the southern markets was adversely affected by cyclones. However, higher raw material costs offset any decline in tags.

India's cumulative imports for October totalled 687,297 t, 11.53% lower than September's 776,835 t. The drop in imports was an important factor sustaining the m-o-m steadiness in pricing.

Outlook

With Donald Trump back in the White House, wary China is mulling a fresh set of fiscal stimulus measures worth over RMB 10 trillion ($1.4 trillion) which could receive approval at its top legislative body meeting held over 4-8 November. These measures are being adopted to possibly secure the economy against any prospective tariff/non-tariff challenges that the Trump government may hurl at China. The fresh stimulus package can also have a profound impact on global and Indian steel and raw material prices in the short term.

At a domestic level, with the cooler weather heralding the traditional peak demand season, market participants expect downstream activity to pick up. However, Chinese steel imports and increased domestic HRC supplies remain a significant cause of concern. Nonetheless, further price hikes are expected in the short term.