Have Indian long steel prices bottomed out?

• Indian rebar prices have corrected by about INR 1,500-2,000/t, since first week of Nov.
• Rebar price spread between large and small mills has widened to about INR 8,000/t against a normal level of INR 4,000-5,000/t.
• Large mills may cut prices but smaller mills have limited room for correction.

Indian finished long steel demand has been sluggish over the past many weeks. Declining prices have not enticed buyers to the market despite the fact that the current and next quarters are peak construction season and should support demand.

As per latest SteelMint data, rebar prices have corrected by INR 1,500-2,000/t ($20-27/t) in the last two weeks for both large and small mills. For reference, prices for IF-based rebars are hovering at almost INR 49,000/t, whereas BF-based rebar prices are at INR 60,250/t, on ex-Mumbai basis.

But will prices drop further from here? As per SteelMint’s assessment, larger mills have some room for correction but smaller mills do not have scope to fall from current levels in the near to medium term.

What factors will allow prices to remain firm?

• Sponge iron prices stable: Long products comprise 45-50 million tonnes of domestic steel production in which secondary (induction furnace) mills, heavily dependent on sponge iron, command more than 65% market share.

Sponge prices have stabilised because coal prices have cooled down. Pellet-based DRI prices in Raipur, which had shot up to over INR 34,000/t ($456/t) around October, are currently hovering at INR 29,000-30,000/t ($389-403/t) and are unlikely to fall sharply from here since coal prices are still high compared to their normal levels.

• Scrap, a bother: Another key raw material is scrap but its supply is tight in local and overseas markets, keeping prices firm.

Imported supply is tight since neighbouring Bangladesh and Pakistan, highly dependent on scrap as raw material, go into a buying frenzy ahead of Christmas holidays in Europe and USA. The sellers return to the market in the first week of January but then freezing temperatures hamper scrap collection from yards, leading to a seasonal supply crunch.

Domestic suppliers are also holding on to inventory fearing prices may slide further because of fluctuations in secondary steel rates. The scrap factor may thus restrict IF players from lowering their offers.

• Exports may regain momentum: Export prospects have been dull for weeks, but regained some momentum with shipments of 30,000 t and of 20,000 t concluded recently, although at a lower offer of around $590/t. Spiraling energy costs in Europe and other geographies have driven mills to a scenario where it is currently cheaper to import rather than produce billets. It is heard, few more billet parcels have been floated by PSU mills and results are awaited.

Lower freights: Ocean freights and vessel availability have eased which are encouraging mills globally to opt for relatively higher export allocations. For instance, capesize rates have dropped from $30/t in Jul-Sept’21 to around $21/t at present.

• Inventory: Primary mills, which had been selling rebar at around INR 60,000/t ($805/t) earlier, have settled recent deals a little lower, at say INR 57,000-58,000/t ($765/t). Discounts are being offered to the project segment too. Such moves have helped liquidate volume although stocks held are marginally higher than under normal circumstances but better than in the rainy season with demand from stockists limited, but from projects firm, it is learnt.

Outlook

The price gap between BF-IF-grades is round INR 8,000/t. SteelMint feels that prices have bottomed out and there would be limited scope for any downward correction. Primary mills may sell at a discount but the IFs, facing scrap shortage and firm coal prices, will not.

Exports still look dull with China quiet, but other markets like Egypt and Europe, labouring under a gas crisis, may look promising not just for Indian but Iran and CIS exporters too.

Iran’s steelmakers are eying exports again with their power issues resolved to an extent, and which can hamper Indian billet export prospects.