Why domestic pig iron prices seem to have bottomed out? BigMint analysis

• Indian mills conclude over 10,000 tonnes of pig iron through auction
  
  
• Indian mills under margin pressure
  
  

Indian mills have recently concluded over 10,000 tonnes (t) of pig iron purchases through auctions, which indicated a potential stabilisation in prices. BigMint understands that pig iron prices have bottomed out in the domestic market as cost considerations are likely to deter sellers from offering at lower-than-current levels while raw material prices, too, are expected to remain at these levels.

The auctions, conducted by key mills such as SAIL's Rourkela and Bhillai Steel Plants, as well as NMDC-Nagarnar, reflected shifting market dynamics amid limited trading activities.

SAIL auctions witness marginal price hike

In a notable development, Steel Authority of India Limited (SAIL) saw good participation in its auctions. SAIL-Rourkela Steel Plant (SAIL-RSP) booked 5,000 t of pig iron at INR 32,100/t, marking a marginal increase of INR 500/t. Similarly, an auction from the Bhilai Steel Plant (SAIL-BSP) witnessed 4,900 t getting booked at INR 31,150/t. Active participation in these auctions was seen, while material was booked at lower prices.

NMDC auction sees soft demand

In contrast, the National Mineral Development Corporation (NMDC) auction struggled to attract buyers. Out of 15,000 t offered, only 3,000 t were booked, while the base price remained unchanged at INR 31,000/t. The subdued response reflects soft demand and cautious sentiment in certain pockets of the market. Moreover, supply in Chhattisgarh is deemed sufficient, as per sources.

Why prices might have reached a floor?

• A key factor supporting the stabilisation of pig iron prices is the recent uptick in Australian coking coal prices, which rose by $6/t d-o-d due to increased demand. Coupled with stable domestic demand, this price rise puts pressure on production costs. With the current hot metal production cost hovering around INR 26,000/t-28,000/t, pig iron prices are unlikely to dip further, reinforcing the view that the market has bottomed out.
  
  
• Moreover, supply constraints of coking coal from Australia has hitherto been the main driver propelling prices in the first quarter of a calendar year, especially January and February, due to weather-related disruptions. Coking coal prices may not drop, going forward, which ought to keep domestic pig iron prices supported because coking coal, on average constitutes for around 40-45% of total production costs.
  
  
• Even though the decision to set a ceiling to metallurgical coke imports at around 2.85 mnt annually is still awaited, the domestic market may well be facing an imminent crunch in supplies if any such regulation is put in place. Pig iron prices will naturally find some support even amid potential paucity of coke in the domestic market.
  
  

Outlook: Stability ahead?

Therefore, chances of pig iron prices trending further lower appears unlikely at this juncture. In addition, amid a subtle upsurge in domestic demand prices are expected to hold steady or even witness slight gains in the near term.