Prices of rebars seem to have gone through the roof of late, fuelled by the double whammy of scorching iron ore prices and a sharp upturn in pent-up demand from the infrastructure construction sector. What’s more, steel manufacturers do not expect prices of rebars, which have been hovering around the sky-high INR 51,000 per tonne (t) levels, for 12-32-mm categories, to cool down unless input costs and demand, both of which determine rates, become tepid.
Prices of rebars ex-Mumbai, manufactured through the BF route touched their highest-ever levels of 2020 in November, at INR 43,700/t and are expected to move further north in the coming months, supported by rising domestic demand that suppliers are unable to keep pace with. Earlier, these prices travelled from INR 34,930/t in Q3FY20 to around INR 38,800/t in January 2020, to touch INR 39,900/t and INR 40,500/t in February and March respectively. Sentiments were low during the lockdown in March-April. But prices started picking up slowly post lockdown due to rising iron ore prices.
Prices of rebars manufactured through the induction furnace (IF) route, rose to INR 38,620/t in November and SteelMint expects these to spike further. From INR 36,145 ex-Mumbai in January these dipped to INR 34,530 in March. With unlock, prices picked up riding high iron ore and scrap prices.
Indian billets prices are hovering at more than a 2-year high, impelled by rising global scrap prices.
Subimal Sarmah, Head of Sales, TMT (E&S) & Cement, JSPL, while speaking at a SteelMint seminar on Indian Long Steel: Short and Medium term Outlook – Can There be Another Price Hike in TMT & Wire Rod by Primary Mills ?, predicted that prices will not stabilise unless and until there is a let-up in input cost or slowdown in demand.
Also speaking at the webinar, Sanjay Agrawal, Senior VP, JSW Steel, said he feels prices are on the north-side and will definitely go up, at least in the coming months. “I do not see a let-up in prices. We are getting orders at better numbers than some of the other mills. But steel is a cyclical industry and mills have to survive in a downturn and when the upturn comes, they make money. But it is not that they make money for long!” he confided.
Representing the secondary sector, Yogesh Mandhani, MD of Mahalakshmi TMT, forecast that he expected more price hikes in December. “I expect a hike of around 5% in December. From January, I see prices either sustaining or there would be probability of some correction,” he said.
Another secondary player and a panelist at the webinar, Ramesh Agarwal, MD, Real Ispat & Power Ltd, predicted that prices over the next 2-3 months should stay “a little high”. After March, much will depend on international markets. “However, because of availability of iron ore there could be some corrections,” he added.
Also on the panel, J Kumar InfraProjects Managing Director Nalin Gupta rued that prices have gone “sky-high”, which is impacting projects being executed, especially since the government has huge amounts of ongoing infra projects. He illustrated his point by saying that if in Q4, FY20 his company was procuring steel at INR 38,000/t exclusive of GST, it is doing so now at around INR 51,000/t. “These prices are not sustainable” he minced no words.
Gupta iterated there are buyers at INR 51,000/t because of the current high demand. If the buyers were not willing to shell out 51k, the mills would have no choice but to lower the prices. “But, right now, demand is supporting the prices. If there was no demand, prices would have climbed down,” he averred.
But what factors are fuelling the long products price rally, although, as Sarmah confided, the mills are not exactly enjoying this uptrend. The usual suspects are runaway iron ore prices and the pent-up demand for steel post-lockdown which is greater than supply at present.
Demand and supply
Demand is emanating mainly from infra – especially in the last two months, automotive and white and yellow goods sectors, because inventory levels with these users were at their lowest during the lockdown and after. With the return of labourers to project sites, infra companies resumed operations with momentum picking up with infusion of funds from the government which is also reflected in the demand for rebars.
As Gupta said, infra projects are economy boosters since they have a cascading effect on several allied industries, including mining, production cycles, manufacturing, aggregates, cement, admixtures, chemicals etc. Hence, the government had no choice but to award new projects and resume those stalled due to the lockdown, to kick-start the economy.
Gupta is quick to add that steel demand post-Covid-19 has increased but not to the extent that supply should be a constraint. Despite huge number of projects being allocated or resumed, supply has become an issue, he stressed.
Gupta foresees the present demand level only going up further basis several upcoming projects, including high speed rails (HSR), Metro Rail, fuelling a huge demand for reinforcements. “Long steels will be in huge demand and there should be some corrections in prices,” he predicted.
Sarmah feels the current demand is pent-up since it was subdued for 4-5 months across individual house builders to mega projects and resumed from August-September. “And that’s where you can see the gap between demand and supply,” he said. Today, despite all the primary producers running at almost full capacity, and with JSPL at 100-105% capacity, mills are not being able to supply materials to customers on time.
JSW’s Agarwal corroborated that the current demand is pent up from the infra sector since it had very low stocks and now needs to add to inventory. He sees high demand emanating from the infra players at least for the next two months before settling down to normal levels.
Runaway rise in input costs All the panelists held the dramatic rise in input costs as another key reason for the price hike. Real Ispat’s Ramesh Agarwal feels one, the auction of the blocks and delay in resuming mining are the reasons for the acute shortage of iron ore in India and two, is the international price hike. International prices of long and flat products have risen by more than $100 in the last 2-3 months.
He does not think the iron ore issues will be sorted out in the short term and that mines are unlikely to restart soon, at least in the next 3-4 more months, keeping prices high. Also, he further feels much will depend on the Chinese steel market and its rates since it manufactures more than 60% of steel globally at more than 900 mnt and so naturally is a market mover and shaker.
Internationally, iron ore prices shot up from $80-85/t to $145/t in the last few days while billets prices catapulted to $170-plus. “These factors are impacting the cost of production and affecting all of us. Our input cost has gone up. Correspondingly, prices of end-products are also going up,” said Agarwal of JSW Steel. Dwelling on the ballooning scrap price, he said in April-May, these were at around $210/t Cnf Mumbai but climbed to $390-400/t cnf Mumbai, up INR 14,500/t in domestic imports.
Sarmah too said JSPL has been severely hit by input costs. The prices of iron ore lumps have spiralled 2.5 times from the August-September levels while fines are up 3-3.5 times in this period. “This has adversely affected us and is the primary reason for the price hike,” he said.
— by Madhumita Mookerji
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