Indian induction furnaces continue to enjoy higher conversion spread (margins) on rising prices. The current margins are high since 2012, as per data available with SteelMint.
As per data, at current prices for Sponge P-DRI and Billet (Induction grade), conversion spread stands at INR 16,000-17,000/MT (USD 235-250) which on an average hovers at INR 10,000-12,000/MT (USD 147-175); in Raipur & Durgapur.
Similarly, spread between Scrap and Billet stands at INR 9,000-11,000/MT (USD 132-162) against an average spread of INR 6,000-8,000/MT (USD 88-118).
India’s crude steel production in financial year 2018 recorded at 102.3 MnT in which 23-24 MnT was produced through induction route. The overall medium & small scale industries in India produced steel through Induction route Ingot/Billets.
As the margins are quite healthy, the producers are ramping up their productions to maximize their profits. The steel production in India also in upsurge in line with boost availability of domestic key fuels like – Coal & Iron ore.
Factors behind high spreads
Low production: In general the production utilization of Inductions is low during the summer season owing to uncertain power cuts and labour issue. This has made poor supply of Ingot/billets in merchant market, resulting sharp rise in prices.
Seasonal strong demand: This summer season is the pick time for construction activities, also the stockiest hurry for pre-monsoon stock resulting soar demand for across finished steel variety. As per SteelMint conversion with re-rollers they are operating units with limited stock and are booked for quite some time for dispatch materials.
As per participants, demand from project works have boosts of government/private sector.
Depreciating Rupee: With the depreciation of Indian Rupee against US Dollar, Indian steel exports become more favorable and imports remained costlier. Indian Rupee is currently trending 17-month low against Dollar.
Higher Scrap Prices: Global scrap prices continue to remain high owing to strong demand globally and higher electrode prices which has attributed to an additional cost of USD 25-30/MT to steel makers using Electric arc furnace across the world.
Since the global scrap costlier Indian intendors has lowered imported scrap purchase. India’s scrap imports decline by about 15% in 2017 and stood at 4.57 MnT against previous year at 5.35 MnT.
Improved supply of sponge iron: Sponge iron supply has improved with the rising productions, supported by rise in India’s Iron ore production which recorded at 202.5 MnT in 2017, increased about 11% as compared to 182.3 MnT in 2016. Sponge iron contributes about 25-26% of India’s crude steel production.
Supportive exports: Indian billet is demanding in the global market since Chinese producers have reduced supplies. Indian billet exports increased by 59% in 2017.
Nepal, which is India’s largest buyer of Induction route billet is continuously booking healthy quantities in Eastern India. Out of total Indian billet exports, Nepal contributes about 30-40%.
Below is the actual & required conversion spread analysis
| Markets | Sponge PDRI (78-80 FeM) |
HMS Scrap (80:20) |
Billet (100*100mm) |
Current Conversion |
Required Conversion (tentatively) |
| Ex-Raipur | 19,700 | – | 36,900 | 17,200 | 12,000 |
| Ex-Durgapur | 20,150 | – | 36,450 | 16,300 | 12,000 |
| Ex-Rourkela | 19,000 | – | 36,900 | 17,900 | 12,000 |
| Ex-Ahmedabad | – | 28,000 | 36,800 | 8,800 | 7,000 |
| Ex-Jalna | – | 27,600 | 37,500 | 9,900 | 7,000 |
| Ex-Chennai | – | 26,700 | 36,000 | 9,300 | 8,000 |
Prices in INR/MT & Excluding 18% GST
Sources: SteelMint Research
Note: The conversion spread represents the speculative cost of production and margins. If the conversion spread is above industry average then the price of the products is higher than the input cost (including miscellaneous, raw material cost and power cost) and the spread is profitable. If the spread is downtrend than the products priced are less than the input cost and are not profitable.
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