Major Indian steel mills are likely to cut their finished long steel prices for Jul’21 deliveries. Consequently, rebar and wire rod prices are expected to come down further. There may be region-wise price variations, depending on projects and retail segments, as per SteelMint’s analysis.
Mills may adjust prices due to following factors:
Higher inventory: Indian primary steel mills have inventory piling up at their yards. Against the usual inventory level of 12-15 days, these are getting extended to over 20 days, at present. A leading primary mill, which generally sells around 2 lakh tonnes per month across the domestic and overseas markets, has seen a significant drop in sales to around 50,000 tonnes (t) in Jun’21. This is an indicator that mills are facing challenges in selling products in the prevailing dull domestic market, as per reliable trade channels.
Further, traders also have adequate inventory levels and are trying to liquidate these on an expectation of price adjustment for July deliveries.
Poor off-take in exports: Export opportunities have turned bleak because of lack of vessel availability and high freights. The key reason behind the inventory pile-up and pressure on prices is lack of exports. Mills have export allocations but muted buying interest because of high freights and vessel unavailability. Notably, large Indian mills have been exporting around 30% of their production for the past few months.
Domestic demand remains dull: Poor transactions from the infrastructure sector have been witnessed since the past few weeks on account of liquidity crisis amidst lockdown due to the Covid-19 pandemic. With halted construction activities, procurement of long steel products remained poor across regions. The situation further worsened with the arrival of the monsoon in India.
Higher capacity utilisation: Most primary mills have reported higher capacity utilisation of over 90% during the last quarter (Q4 FY’21), However, lower demand in the market is increasing selling pressure on the mills.
Secondary mills may also cut prices
The secondary mills may also reduce prices due to poor demand. The price gap between the primary and secondary (medium/small scale) mills’ rebar prices narrowed to around INR 4,000-5,000/t on an average in most of the locations.
Current trade reference rebar prices of 12-32 mm (Fe 500D, BF grade) are reported at INR 51,000/t, while induction grade (Fe 500) stands at INR 45,500/t ex-Mumbai, excluding 18% GST.
Outlook
Industry experts feel that, as global demand pulls down, the Indian mills may have to cut capacity utilisation in the coming weeks to match supply-demand chains. If they don’t go for production cuts, prices as well as margins of the mills may dip further.
Few traders feels that the recent export tax proposed by Russia and expected export tax levy in China may lead Indian exporters to explore untouched export destinations and which could also touch healthy volumes.
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