The conversion spread (margins) from sponge iron to billets fell by 3% in Raipur but was slightly up by 1% in Durgapur m-o-m in Aug’21.
The monthly average conversion from sponge P-DRI to billets in Raipur (in central India) stood at around INR 11,900/tonne (t) and in Durgapur (eastern India) at INR 12,250/t in Aug’21, according to SteelMint’s assessment.
Yesterday, (1 Sep’21), the conversion was recorded at INR 12,300/t in Raipur and INR 12,600/t in Durgapur.
Reasons behind this mixed trends in conversion
SteelMint learned from sources, there was a strong demand as well as supply shortage for sponge iron which continued to support sponge iron prices in mid-August. This continued for a while due to scarcity in deliveries of sponge iron. This also pushed billet producers to quote higher prices.
In late August, it was seen that a sharp drop in pellet prices in the domestic market, along with improved supply of sponge iron brought semi-finished steel prices under pressure.
This mismatch in the supply-demand of sponge iron and drop in prices of its raw materials led to fluctuations in the conversion spread.
Analysis
The monthly average domestic billet prices gained by INR 1,150-1,450/t in both central and eastern regions.
Furthermore, sponge iron prices increased by INR 1,500/t in Raipur and by INR 1,350/t in Durgapur, during Aug’21.
Outlook
Sources feel, prices of sponge iron are likely to remain under pressure due to decrease in the prices of raw materials (iron ore and pellets). Hence, the margins of furnaces are likely to remain volatile as supply-demand is imbalanced currently. Also, demand for finished products is expected to remain subdued.
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