SteelMint steel index dragged down by dull demand, govt steps may elicit mixed response

• Domestic buyers step back, do only need-based buying
  
  
• Exports look dull as globally prices fall
  
  
• EU quotas, China's emergence from lockdown may inject excitement in market
  
  
• Recent govt measures can cut production costs, but discourage exports
  
  

Morning Brief: SteelMint's India Steel Composite Index fell 2% in the week ended 20 May, 2022. In fact, this is the second week in a row that the index has fallen by 2% to 179 points. It may be mentioned the index was compiled prior to the recent government steel-related export tax imposition and import duty reduction.

Why has the index dropped?

Domestic demand has been dull overall while exports have been muted as the European Union has stopped buying amid falling global prices.

Factors pulling down longs' prices

• Need-based procurement: Demand from the project segment is low at present. Procurement was done at lower prices offered previously. But when prices started escalating, projects stepped back. With the approaching monsoon, demand will be even lower, it is expected. Only projects with deadlines are procuring, it seems.
  
  
• Secondary mills undertake production cuts: Electric furnace mills have significantly lowered their capacity utilization, burnt by higher power tariffs, power outages and steep coal prices. Inventories are piling up as buyers hold back bulk procurements.
  
  
• Longs exports market dull: Indian rebar export offers continued their downtrend this week too with mills lowering offers to $780/t CFR Hong Kong and yet no significant deals were reported even at such lower offers. Competitive offers from the Middle East and bid-offer disparities are leading to the dull market scenario.
  
  
  

Why are flat prices under pressure?

• Limited domestic buying interest: Domestic trade-level prices of flat products continued to remain under pressure due to limited buying interest. As a result, prices of coated flat steel products, especially galvanised plain coil (GP) and pre-painted galvanised iron (PPGI), dropped to a two-month low this week in the key market of Mumbai.
  
  

Buyers ranging from infrastructure and construction to OEMs and heavy engineering, fabrication etc all did need-based buying. Only, projects that are critical in nature or nearing completion have been procuring, while others are postponing their purchases amid the continual drop in prices lately.

• Export offers hit by softened global prices: On the exports front, SteelMint's HRC (SAE1006) export index dropped further by $39/t this week to $821/t FOB east coast India. Last week, prices dropped $50/t w-o-w. Offers to the Middle East dropped to $880-900/t CFR contrasted against the previous week's $890-920/t CFR for July deliveries. Bid offer disparities emerged in the markets of Vietnam and Europe. Indian mills offered HRCs (SAE1006) to Vietnam at $810-840/t CFR, whereas the bids stood at around $730/t CFR. Meanwhile, HRC (S275) export offers to Europe stood at around $1,000/t CFR, while the bids were heard lower at $950/t CFR. The softening in global flat steel prices has been a major factor impacting overseas buying sentiments and are weighing on Indian export offers.
  
  

Govt measures

However, the recent steps taken by the government will have repercussions.

An export duty has been imposed on 10 iron ore items. In the case of iron ore pellets, which currently attracts nil export duty, a 45% export duty has been imposed. In the case of nine other classes of iron ore and steel intermediates, a 15% export duty has been imposed. This includes flat-rolled products of iron or non-alloy steel.

The existing 30% export duty applicable on iron ore and concentrates has been raised to 50%.

The duty on iron ore items will deter exports of the same, increase domestic availability, may reduce prices and help steel mills cut production costs.

However, the 15% export duty on flat-rolled may discourage mills from exports amid dull domestic demand.

The reduction of the import duty on coking coal and anthracite from 2.5% to nil and the same on coke and semi-coke from 5% to zero will also reduce production costs. Scrapping the import duty on ferro nickel from 2.5% to nil will further help contain costs.

Outlook
Two developments will be keenly watched by Indian mills. One is the EU quotas that will open up from July which Indian mills will look to capitalize on.

Second is China's easing of Covid lockdowns, which would mean resumption in domestic demand there and lesser focus on exports. Both factors can support higher prices. The Chinese export de-focus can translate into more opportunities for Indian mills and the higher prices can be a boon.

But the recent export tax can be a dampener amid dull domestic demand.

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 doesn't give the absolute price. 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.