The conversion spread from steel billets to wire rod in Raipur (Central India) has dropped for the third consecutive month in Jan’22. The suppliers are working on low margins and also giving attractive rebates of around INR 500-1,500/t to liquidate their stock, SteelMint learned from sources.
The average conversion spread was recorded at around INR 3,396/t in Raipur and INR 3,294/t in Durgapur in Jan’22, declining by 9% and 6% m-o-m respectively, as per SteelMint assessment.
Notably, Raipur (central region) and Durgapur (eastern region) are the major supplying centers of IF-route wire rod in the country. As per data maintained with SteelMint, daily production in these two regions stands at around 10,000-11,000 t and 6,000-7,000 t, respectively. Out of total wire rod production in India, the induction route contributes to about 55-60% while the rest is produced through blast furnace billets.
Reason behind fall in conversion-
Higher prices impact domestic trades: In Jan’22, raw material prices increased consistently which pushed wire rod manufacturers to raise prices. On an average, prices increased by 7% to INR 48,840/t in Raipur and and 8% to INR 49,388/t in Durgapur. However, rising prices didn’t get support due to lack of demand for bulk material which impacted trades.
Demand from end user industries weakens: Higher prices made buyers cautious, hence, they procured limited material. Along with this, end-user industries of the finished products like galvanized wire, binding wire and barbed wire which use wire rod and HB wire as a raw material, also observed lack of demand in the market. This forced them to curtail production by around 50-60%.
Competitive offers from primary mills: The lowered price gap between blast furnace route and induction route wire rod also dampened IF-route wire rod demand. Currently, SAIL’s SAE 1008 grade (5.5-6mm) wire rod offers are at INR 52,000-52,300/t exw-Bhilai while IF-route prices are also in the range of INR 51,700-52,300/t exw in Raipur and Durgapur markets. The prices mentioned above exclude 18% GST.
Fall in export enquiries: With limited trades in the domestic market, export demand also remained affected in Jan’22. Wire rod exports to Nepal dropped by 13% to 18,111 tonnes (t) in Jan’22 as against 21,345 t in Dec’21.
Notably, Nepal is one of the major importers of Indian wire rod (both BF- and IF-routes). In CY’21, total wire rod exports from India to Nepal stood at 256,000 t.
Outlook: Market sources are expecting wire rod prices to remain driven by raw material price movements. Transactions are likely to remain moderate due to higher prices and procurement will remain slow at prevailing offers.
Further, price corrections are also expected. The conversion spread is expected to remain range-bound, close to about 5-10%(1%+/-) in the near term.
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