Small steel plants in Chhattisgarh are planning to cut production with the conversion spread between sponge pellet (P-DRI) and semi-finished steel gradually narrowing and margins coming under serious pressure.
The Chhattisgarh Mini Steel Plant Association has urged small manufacturers to curb production by 25%-30%, as per respective capacity, which is equivalent to stopping production for 5-7 days at a stretch in a month.
The Association estimates a net loss of INR 3,000/t for small steel producers. This is in account of rising prices of sponge iron due to elevated iron ore prices. SteelMint estimates that P-DRI prices have climbed to INR 27,344/t (exw Raipur) in Mar’21 from INR 25,222/t in Jan’21. Prices are unlikely to reverse down due to strong pellet prices supported, in part, by high export prices.
Narrowing conversion gap
Similarly, the conversion spread from P-DRI to billet has shrunk to INR 11,342/t in Mar’21 from INR 12,834/t in Jan’21. The required conversion spread is INR 12,500-13,000/t. Likewise, the spread from billet to re-bar is INR 4,000/t. However, steel-makers’ margins have shrunk, as SteelMint data bears out. The billet-re-bar spread has narrowed to INR 3,846/t in Mar’21 vis-à-vis INR 4,532/t in Jan’21.
Sources have informed SteelMint that retail trade activities in Chhattisgarh as well as the major markets across the country have been affected by the resurgence of Covid cases. In its recent meeting, the Association noted that the prevailing lockdown in Raipur has already given way to labour shortage that could impact finished steel deliveries. Many producers are, therefore, planning to commence maintenance shutdowns or slash production levels to adjust to prevailing market dynamics.
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