India: Steel, raw material prices decline in June. What to expect in July?

• Prices still feel impact of export duty, dull demand
• Iron ore and pellets prices see sharpest correction
• July may see prices dropping further amid production cuts

Morning Brief: Steel prices continued their downtrend in June after showing an unrelenting northward movement prior to April. Iron ore and pellets took the hardest punch from the export duties. Coal broke its resistance barriers of May to also show a decline while finished items felt the impact of the 15% export tax as did ferro alloys too.

SteelMint goes behind the scene:

Coal

• South African RB2: The bi-weekly index tracking the average portside ex-Gangavaram prices of the South African RB2 5500 NAR dropped 17% m-o-m in June, 2022 to INR 18,410/t against INR 22,050/t in May, 2022. Prices fell below the 20k levels for the first time since March.The decline stemmed from the lack of appetite from sponge iron manufacturers, for whom RB2 is the preferred grade. Sponge players resisted buying on the back of tepid demand for finished steel as exports took a major hit from the 15% duty slapped on 22 May. Moreover, sponge makers also showed a weakness for the comparatively lesser priced low-CV RB3 (4800 NAR).
• Australian low-vol HCC coking coal: Average prices of the Australian low-vol HCC, lost 26% m-o-m in June to $400/t against May’s $540/t. Prices had touched an all-time high in March of an average monthly $620/t.Coking coal was dealt a double whammy of tepid buying interest and increased supplies and unsold stocks left with Australian sellers. The third week of June did see some uptrend in prices on account of a resurgence in spot demand from Asian markets. However, weak steel demand and hence prices overall kept coking coal down.
• SECL’s G9 (4750 GCV) auctions: No auction was seen from CIL’s major coal producing subsidiary-Southern Coalfields (SECL) during June. Interestingly, the company has been conducting auctions in alternate months so far in 2022. The reason is persistently high demand from the domestic power sector

Ferro alloys

• Silico manganese 60:40: Prices of the bi-weekly 60:14 grade silico manganese index emerging out of Raipur dropped 8% m-o-m to INR 81,970/t in June, 2022 against INR 88,980/t in May amid subdued demand for finished steel and market uncertainty. The 15% export duty stalled exports which impacted finished demand.

Scraps and metallics
All showed a drop ranging from 7-15%, influenced especially by the cut in production from the electric furnace segment.

• Pellet-based P-DRI: The pellet-based P-DRI, ex-Raipur, dropped 7% to INR 31,430/t in June, 2022 (compared to INR 33,840/t in May, 2022) amid falling sponge and billet prices (because of the production cuts undertaken by electric furnace mills). Overall, finished steel demand impacted sponge too.
• Steel grade pig iron: Pig iron prices fell a sharp 15% m-o-m in June to INR 45,020/t (INR 52,720/t in May) amid lower export realisations, weak finished steel demand and higher supplies. Apart from drop in bids from the US, the 15% export duty rendered overseas sales unviable while demand for finished goods dropped (as an offshoot of the 15% export duty on finished items).
• Domestic scrap: The domestic scrap (ex-Mumbai) index dipped 10% to INR 37,940/t in June, 2022 against INR 42,000/t in the previous month. Subdued demand for semi-finished and finished steel and the consequent production cuts by electric furnaces kept demand for scrap low. The lower sponge and pig iron prices acted as a damper too.

Steel
This segment, comprising semi- and finished, saw prices dipping in the range of 5-11%.

• Billets: The ex-Raipur billet index lost a further 9% m-o-m to INR 46,400/t in June, 2022 (INR 50,890/t in May). Subdued demand for finished steel amid the export tax imposition kept sentiments for billets weak. Moreover, prices of raw materials like sponge pig and scrap also supported the lower billet prices.
• Rebar: The ex-Mumbai BF-grade dropped 11% to INR 60,410/t (INR 67,750/t) in June, while the IF grade dropped 5% to INR 56,380/t (INR 59,570/t). Wire rods (ex-Durgapur) lost 9% to INR 50,790/t (INR 55,570/t).India’s induction furnace finished long steel market witnessed limited buying enquiries or bulk trade amid low demand for project construction steel due to the monsoon. A fall in raw material prices also kept longs prices down.

  Primary mills, weighed down by the export tax, as well as dull monsoon demand, were impelled to drop prices. But buyers receded, waiting for further reductions.

• HRC: Flats fared worse than longs. Ex-Mumbai trade level HRC prices lost 11% in June to touch INR 61,960/t (INR 69,830/t) m-o-m in May.Flats were hit hard by the export tax since majority of Indian steel exports comprise of flats, which, in turn, impacted domestic prices. Indian mills offered boron-added HRCs for exports to Vietnam but there were few takers. As a result, domestic prices were also in free-fall in June.

Iron ore
This raw material, in terms of fines, lumps and the high-grade 63% pellets, dropped in a range of 21-31% m-o-m in June, 2022, in a knee-jerk reaction to the steep export duty imposition of 50% on all grades of iron ore against the previous 30% only on grades of Fe58% and above.

• Fines, lumps and pellets: Fe63% fines from Odisha were down a steep 31% to INR 3,690/t (INR 5,380/t) while the Fe63% lumps (Odisha) dropped 29% to INR 5,610/t (INR 7,850/t). Fe63% pellets (DAP Raipur) lost 21% m-o-m to INR 7,930/t (INR 10,020/t).The iron ore price drops were propelled by weak demand for semis, finished steel, disrupted exports flow and falling prices of the material in China.

  The domestic pellet index, PELLEX, hovered at a two-year low amid drop in deals. The 45% export duty slapped in May impacted domestic prices as export demand lessened.

  Buyers stayed away, waiting for pellet prices to fall further.

Short-term outlook
With the export tax still in implementation, overseas sales are expected to see an impasse in July. As a result, many of the larger mills have opted for maintenance shutdown in July. The electric furnaces have been curtailing production for the last few months, in any case, thanks to higher coal and power prices and subdued demand. Thus, Indian crude steel production is expected to drop by 10-15% in the current month.

With lesser production prospects, demand for raw materials and semis may stay muted or decline further. Finished demand is also expected to stay subdued and drag down prices although the correction in flats may be sharper than in longs.