Improved supply along with constant drop in prices has led to fall in conversion spread (profit margins) of Indian mid scale wire rod mills by 11-12% M-o-M in Feb’20.
Raipur & Durgapur are the major wire rod producing markets considering secondary mills. The manufacturers here have reported fall in conversion spread by INR 500-600/MT (11-12%) during Feb’20.
As per them, currently the conversion (margins) are in hand-to-mouth which is marked about INR 3,400/MT in Raipur & INR 3,500-3,600/MT in Durgapur from Billet (100*100mm) to Wire rod (5*5mm) on a monthly average basis.
They further cited that, if the margins drop further they will opt to cut output to match supply-demand, which will ultimately support their margins.
It is learned that the key factor behind falling margins is over supply & limited demand. In addition, in the last couple of months there was an additional supply of wire rod in merchant market as about 3-4 new plants have started making wire rod and a couple of mills in eastern India have expanded their capacities.
On an average, the add on wire rod supply in the last couple of months in merchant market learned about 2,500-3,000 MT per day, equivalent to 80,000-90,000 MT on a monthly basis. Thus, it has impacted on price range as at the same time demand with mills was not up to the mark.
As per assessment made by SteelMint, wire rod offers through the secondary mills drop by INR 2,500-3,000/MT since Jan’20 and are currently hovering at INR 32,500-32,700/MT ex-Durgapur & INR 32,000/MT ex-Raipur, size 5.5 mm & excluding of 18% GST.
Out of total wire rod production in India, secondary (mid scale) mills contribute to about 55-60%, while the rest is produced by large scale mills through blast furnace billet.
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