India: Induction based mills stock up quality scrap, expect improved demand

Secondary sector prices increased on 10 Jun ’21, as estimated by SteelMint the previous day. The SteelMint billet index rose by a good INR 500/t on 10 June to INR 43,100/t exw Raipur while benchmark Raipur sponge iron prices moved up by INR 400/t to INR 30,800/t exw. Buoyed by the rising prices, volumes rose in tandem. A total of 5,500 t of transactions in steel billet were recorded against 4,860 t on 09 June. Although in sponge iron, volumes fell but these were still much higher than what the market witnessed a few days back.

Stocking up on scrap, demand anticipated

Billet and sponge iron prices seem to be firming up as secondary mills are upbeat that the lockdowns would start easing out in most states from mid to end June. With monsoons round the corner, demand is unlikely to be that high but still mills expect some amount of pent-up demand to translate into sales.

Consequently, secondary mills have started stocking up on raw materials like scrap. Interestingly, taking a longer-term view, these mills have been scouting for good quality scrap for the last few months, which is driving them to SAIL auctions of secondary and defective scrap. Since Mar this year, the volumes sold in SAIL’s defective steel auctions have been rising from around 10,000 t to 24,000 t levels in May, although these did drop back somewhat because of the Covid second wave.

Source: SteelMint Research

Why are mills stocking up on high quality scrap?

• Local scrap collection and generation have been poor on account of the Covid surge and lockdowns. Automobile plants went into shutdowns due to Covid and oxygen diversion to hospitals that decreased the quality scrap generation, somewhat.
• Imported scrap is not viable at present because of the high prices, besides requiring a longer lead time. Thus, mills are cautious and selective in booking imported scrap.
• With the administration lifting restrictions on re-bar supply by the secondary producers, the stage is set for Induction Furnace (IF) mills to supply steel for government projects. The quality, however has been an issue and IFs are now keen to use better quality raw materials once construction picks up post-monsoon.
• Narrowing spreads between sponge and scrap prices.

  Mills not worried

  Corroborating the induction furnace players, a primary mill source confirmed that the demand was picking up but not to the usual levels. For instance, under normal circumstances, they supply around 70% of their material to government infra projects. That share has dropped to 50-60% at present.They are, however, not too worried, even with inventories piling up a bit because if the domestic market does not perform well, they can always fall back on exports, the source said.

  
  Prices as on 8:40 IST, 11th June. d-o-d changes indicated against closing price of 10th June