India's Rebar-HRC spread shrinks in Jan'25 but flats segment still subdued - BigMint analysis

• BF rebar prices edge down as dull demand continues
  
  
• HRC market remains stable with import pressure easing
  
  
• HRC exports resume amid Chinese New Year holidays
  
  

Morning Brief: The domestic hot-rolled coil (HRC)-rebar reverse spread continued to shrink in January 2025, settling at INR 5,300/tonne (t) ($61/t) against INR 6,000/t ($69/t) in December. The gap eased by INR 700/t ($8/t), as blast furnace (BF) rebar prices declined by 1.1% m-o-m to INR 52,300/t ($599/t), while HRC tags saw a minor 0.2% uptick to reach INR 47,000/t ($539/t).

In January, rebar prices plunged to a four-month low, while HRC hovered near four-year lows, with similar levels last seen in November 2020. Given that, usually, HRCs are sold at an INR 4,000-4,500/t ($47-53/t) premium to rebars, the spread is in negative territory and is far from normalising.

Previously, the HRC-rebar spread had plummeted to a 10-year low in November 2024. Presently, the spread is merely INR 1,100/t ($13/t) off from November's figure.

Factors that impacted the spread in Jan'25

BF rebar

Buyers out of sight amid dull demand: Deal momentum lagged in the trade channel, with participants shying away from making bulk purchases amid sluggish activity in end-user segments.

Additionally, price volatilities and uncertainties regarding the market's future direction made users unwilling to risk their capital on needless procurement. As a result, buyers stayed firmly on the sidelines.

While a price hike had been announced at the beginning of the month, the market forced mills to reverse this decision. Ultimately, lethargic trade activity led to a downtrend in the BF rebar space.

IF rebar tags steady m-o-m: Induction furnace (IF) rebar prices edged up by 0.3% m-o-m. Prices faltered during the middle of the month, following reduced trade activities, but they rebounded during the latter half, as deals picked up. Additionally, with billet and sponge iron prices steady m-o-m, IF rebars did not receive any cost support from the raw material side.

Raw material tags fail to lend support: Both iron ore fines and Australian premium hard coking coal (PHCC) prices declined m-o-m, and BF-based steelmakers were not able to cite rising raw material costs as a justification for hiking tags. The Odisha iron ore fines index lost 4% m-o-m to settle at INR 5,070/t, with need-based procurement, both in domestic and export markets, compelling miners to knock down their offers. Meanwhile, prices of Australian PHCC fell by 5% to $200/t from $210/t, hit hard by muted demand, unrelenting bid-offer disparities, and weak steel prices.

HRC

Safeguard duty buzz provides price support: In January, the domestic HRC segment saw muted buying which took a toll on market sentiment. However, this was suppressed by optimism regarding the implementation of the safeguard duty, which emerged particularly during the month-end, as rumours swirled regarding its announcement coinciding with the Union Budget.

Furthermore, the import pressure eased, with overseas stocks constituting approximately 20% of the market share by the end of the month.

While prices (in Mumbai especially) increased by the end of the month, concerns also surfaced about the sustainability of the rise, as transactions primarily took place at lower offers.

Ultimately, prices settled largely at December's levels.

Import volume eases slightly: India recorded 471,623 t of bulk HRC and plate imports in January, marginally lower than 473,222 t in December 2024. Overall, volumes touched a seven-month low last month.

Chinese New Year holiday allows for India's export comeback: India's HRC exports were lacklustre over January, with volumes halving to 117,338 t from 254,930 t in December. However, towards the end of the month, mills began to offer material actively, in particular to the Middle East and Vietnam, as Chinese exporters relaxed their grip during the Lunar New Year.

However, exports to Europe remained dormant, with domestic markets struggling with tepid demand amid the harsh winter weather and disquiet regarding ongoing anti-dumping investigations keeping buyers wary.

Indian export offers to the Middle East declined from $535-540/t CFR UAE to $530/t over the month, while last heard offers to Europe were at around $590-595/t CFR Antwerp ($540-545/t FOB, east coast India).

Outlook

Market participants' hopes were dashed when the Union Budget failed to offer significant incentives to boost steel consumption. The long steel segment had been looking forward to robust infrastructure investments. Ultimately, the capex allocations were deemed inadequate, and as a result, rebar prices are expected to remain depressed in the short term.

Given the persistent market slump, BF mills seem to be considering maintenance-related shutdowns. The market grapevine is that major flat steel producers are putting their hot strip rolling facilities and furnaces under maintenance, which is expected to tighten HRC supply. This may help lift prices, and steelmakers certainly expect so, given that major mills have hiked HRC list prices for February by up to INR 2,000/t against levels prevailing at the end of January. However, there may be resistance to such a sharp hike.

The threat of China increasing steel exports is always present, especially because the domestic market in China remains depressed. Moreover, while the market has been anticipating the imminent implementation of a safeguard duty to curb cheap steel imports, the latest renewal of BIS licences of Vietnamese steel major Formosa Ha Tinh is also a cause for concern. It may be noted that Vietnam was the fourth-leading flat steel exporter to India, though volumes plunged considerably following the introduction of AD investigations.

Consequently, steel prices are expected to stay on a downward trajectory.