Morning Brief: Raw materials fuel Indian steel price rise in Jan

January saw steel-making raw material prices headed north which influenced semi- and finished selling prices. SteelMint goes behind the uptrend.

• Coal: The bi-weekly index tracking the average portside ex-Gangavaram prices of the South African RB2 5500 NAR rose 18% m-o-m in Jan'22 to INR 12,980/t against INR 11,000/t in Dec'21, mainly due to logistics issues at South Africa's rail network, Transnet. This constricted movement to Richards Bay Coal Terminal for onward shipments, leading to a sharp drop in stocks at Indian ports. Consequently, RB2 prices spurted, increasing coal costs of sponge iron players who are heavily dependent on this grade. The tight supply encouraged advanced port-side bookings for February.
  
  

The domestic G9 grade (4750 k/cal) auctioned at South Eastern Coalfields (SECL) inched up 2% m-o-m to INR 5,118/t in Jan'22 against Dec'21's INR 5,008/t. Prices in the spot auction were elevated, recovering from the lows of Nov'21. This was primarily due to lesser volume put on sale as Coal India (CIL) had allocated bulk of the volume towards auctions earmarked for the power sector. G9's marginal rise m-o-m in Jan'22, however, does not reflect the actual condition of the market as price disparity was seen for the same grade offered from different collieries. In fact, the highest bid was recorded at INR 6,265/t for coal offered from Damini Colliery, which was around INR 4,611/t higher than the reserve price.

• Ferro alloys: Prices of the bi-weekly 60:14 grade silico manganese index emerging out of Raipur was up 7% m-o-m to INR 100,220/t in Jan'22 against INR 93,450/t in Dec'21. The uptrend stemmed from mainly three factors: 1) a rise in coal prices (since ferro alloy units are power are power-intensive). 2) An uptick in finished steel prices in India towards last month-end. 3) There were demand-supply mismatches over last month.
  
  
• Coking coal: Prices of the Australian HCC rose 19% m-o-m in January to $430/t against Dec'21's $360/t. Prices, after giving buyers some respite in Nov-Dec'21, are again moving north, touching record high levels, fuelled mainly by high demand and constricted supply issues - on account of weather-related challenges from Australia, the leading producer of the commodity globally. The fact that there were supply constraints from another key supplier, USA, supported Australia's higher prices. Tepid demand, with Indian buyers showing resistance, failed to cool the prices since restocking demand from ex-China markets is high.
  
  
• Scraps and metallics: All prices showed an uptrend, influenced by rising imported coal rates. The pellet-based P-DRI, ex-Raipur, increased 13% to INR 32,550/t in Jan'22 (compared to INR 28,740/t in Dec'21) riding the escalated RB2 prices from South Africa while domestic supply from Coal India remained constrained.
  
  

Pig iron prices gained 11% m-o-m to INR 43,010/t (INR 38,770/t) in the month under review on rising met coke prices and coking coal prices. Coke is used as a reductant in blast furnaces and is derived from coking coal. Thus, pig iron's price movements are highly dependent on both inputs.

Domestic scrap (ex-Mumbai) edged up 4% to INR 37,130/t in Jan'22 against INR 35,810/t in the previous month, propelled by a few factors. The higher sponge and semi-finished prices acted as catalysts. Semi and finished steel prices rose which also supported the uptick. Semi-finished prices rose by up to INR 3,000/t towards January-end, while in finished steel, rebar prices were up by INR 1,300-3,300/t.

• Steel: This segment, comprising semi- and finished, saw a mixed trend. For instance, finished longs prices rose 1-8% while HRCs lost a marginal 2% and the ex-Raipur billet index gained a healthy 9% m-o-m. The ex-Mumbai BF-grade inched up a marginal 1% to INR 55,430/t (INR 55,080/t), and IF grade by 6% to INR 52,380/t (INR 49,490/t). Wire rods (ex-Durgapur) rose 8% to INR 49,380/t (INR 45,760/t). But ex-Mumbai trade level HRC prices lost 2% to touch INR 64,020/t (INR 65,380/t) m-o-m.
  
  

The rising raw material costs impelled mills to raise prices. The gas shortage in Europe offered scope for billets exports to mills in the Continent which allowed room for a raise in longs prices. But earlier in January, flats exports were somewhat quiet, which reflected on domestic prices. However, prices picked up towards month-end.

Iron ore: This raw material, in terms of fines, lumps and the high-grade 63% pellets, rose m-o-m in Jan'22. Fe63% fines from Odisha inched up 1% to INR 5,340/t (INR 5,300/t). Fe63% lumps (Odisha) upped 2% to INR 8,610/t (INR 8,460/t). Fe63% pellets (DAP Raipur) gained a healthy 12% m-o-m to INR 11,380/t (INR 10,170/t). Global iron ore prices hit five-month high on a positive demand outlook ahead of the Lunar New Year holidays, Winter Olympics, coupled with monetary easing and surge in futures.Also, there was limited high grade lumps available against a backdrop of rising steel prices. Overall, iron ore prices have been buoyed by rising pellets exports to China as well.

Outlook

Raw material prices may remain elevated in the short term due to increased demand from China post Lunar New Year holidays, which can support raised steel prices. However, China may crack down on the inflation, which can give mills a breather.