Conversion spread (margins) from sponge iron to billet had surged up by 9% in Durgapur & about 4% in Raipur m-o-m in Mar’21. It rose further by 3-4% in both the locations during Apr’21.
As per data maintained by SteelMint, the monthly average conversion from sponge P-DRI to Billet in Raipur (Central India) stood at INR 11,800/t & in Durgapur (Eastern region) at INR 13,350/t during Apr’21.
While, on daily basis on 6th May’21 it is recorded at INR 12,900/t in Raipur & INR 15,200/t in Durgapur.
The standalone furnaces in the Central region stated that, with the significant surge in raw material costs as well electricity tariffs, the conversion required is about INR 14,000-15,000/t, from P-DRI to Billet. Hence looking at current conversion, the billets manufacturers mentioned that they are under loss on current trade price.
Why did it happen?
A fall in the production of standalone furnaces (billet plants) & hot rolling mills are the major reasons behind the uptick in conversion and further aggravated by shortage in supply of oxygen and the current ongoing lockdown.
Analysis
Billet prices gained sharply by INR 950-2,000/t, while there was a decrease in sponge iron offers by INR 700/t in Raipur and of INR 300/t in Durgapur, in the past one month. Clearly, the opposite price movement in both products have resulted in a surge in conversion spread.
Outlook
Due to higher raw material prices of sponge iron makers i.e., Iron ore & Pellet, on account of healthy export demand, the sponge makers may push to keep prices strong to maintain their margins.
Whereas there are less expectations of sharp price corrections in billet considering low productions & margins. Thus, this indicates a balance in margins in coming few days.
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