India: Billets-wire rod conversion spread inches up m-o-m in Raipur

The conversion spread between steel billets and induction furnace (IF)-route wire rods has improved marginally in Raipur (central India) in February after a gap of three months.

On a monthly basis, the average conversion spread was recorded at around INR 3,445/tonne (t) in Raipur, inching up by 1% and around INR 3,295/t in Durgapur, stable m-o-m in February, as per SteelMint assessment.

Notably, Raipur (central region) and Durgapur (eastern region) are the major IF-route wire rod supplying centers across the country. As per data maintained with SteelMint, daily output in these two regions stands approximately 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 about 55-60%, while the rest is produced through blast furnace billets.

Factors behind improved wire rod margins in Feb’22 –

• Rise in raw material prices: The rising trend in raw material prices seen in Feb’22 pushed wire rod manufacturers to raise prices. On an average basis, prices increased by 6% to INR 51,830/t in Raipur and by 5.5% to INR 52,160/t in Durgapur. Looking at the uptrend, buyers who had adopted the wait-and-watch policy resumed procurement.
• Major mill under maintenance shutdown: One of the major wire rod suppliers in central India, having a daily production of about 1,000 t, shutdown its mill on maintenance. Along with this, a few other mills were also running on low capacity utilisation. This led to an increase in wire rod prices in the spot market.
• Moderate purchase enquiries: The market witnessed moderate buying inquiries amidst optimistic trends which prompted producers to lift their offers. However, in absence of bulk trades and amidst the uncertainities, suppliers offered attractive trade discounts of INR 1,500-2,000/t to liquidate their material which they bought at higher prices so as to minimise the losses.
• Lower offers by primary mills: Currently SAIL (BF-route) wire rod offers were lower  and stood at INR 54,500-55,000/t exw-Bhilai for SAE 1008 grade (5.5-6mm) while IF-route prices were also in the range of INR 56,500-57,500/t exw in Raipur and Durgapur markets. Prices exclude 18% GST.
• Lack of export enquiries: Nepal is one of the major importers of Indian wire rod (both induction furnace and blast furnace). In Feb’22, total wire rod exports from India to Nepal stood at 17,081 tonnes, down by 6% m-o-m.

Conclusion

Manufacturers were struggling to get appropriate margins, hence, they managed to improve the spread by curtailing production.

On the other side, end-user industries of the finished product, specifically galvanised wire, barbed wire, which use wire rods and HB wire as raw material, witnessed lack of demand in the market. Hence, they operated at around 30% utilisation rate which was also a reason for subdued demand for bulk wire rods in the market.

Outlook: Soaring raw material prices and the ongoing war between Russia and Ukraine increase uncertainities in the market. Sources are expecting wire rod prices which are already on a higher side may remain driven by the above-mentioned factors.