- Rebar HRC spread narrows 50% m-o-m in Feb
- Spiralling thermal coal, pellet prices hit induction furnaces badly
- Rise in IF-route rebar influences BF route prices
- Domestic demand supports high prices
- Good automotive, consumer durables season may keep HRC prices high
- Russia-Ukraine factor to keep raw material, finished prices high
The Indian rebar-HRC spread dropped 50% to INR 4,300/t ($57/t) in Feb’22, a far cry from the record peak of almost INR 16,000/t ($211/t) witnessed in Jun’21, revealed data maintained with SteelMint. The increase in prices of both materials narrowed the delta unlike in the previous months when hot rolled coil (HRC) prices had been trending up more sharply compared to rebar.
Monthly average trade level benchmark blast furnace-route rebar prices in February were at INR 62,000/t ($816/t) against HRC’s INR 66,300/t ($873/t). Earlier, in January, rebar was at 55,400/t ($729/t) against HRC’s INR 64,000/t ($842/t). In fact, m-o-m rebar has risen a sharper INR 6,600/t ($87/t) against HRC’s INR 2,300/t ($30/t).
Factors influencing the current spread
A key reason for the rising prices is the raw materials cost push across steel items. However, the secondary mills, which command around 65% of the longs market in India, have been particularly affected by the spiralling raw material prices, especially of thermal coal and pellets, which have dragged up their cost of production, ultimately making the end-product (rebar) more expensive.
Thermal coal prices shoot up: Thermal coal prices, which had been pushing north since 2021, riding the energy crisis in China and the European Union (EU), has continued into 2022. Average portside ex-Gangavaram prices of the South African RB2 5500 NAR rose a sharp 23% m-o-m in Feb’22 to INR 15,980/t ($210/t) against INR 12,980/t ($17/1t) in Jan’21.
The Russia-Ukraine conflict has only made matters worse, as Europe stares at lack of oil and gas and coal supply from Russia and clutches at alternate sourcing countries. Limited vessel arrival is strengthening portside South African RB2 prices to as high as INR 19,500/t ($257/t) from around INR 11,000/t ($145/t) in Dec’21.
Current RB2 FOB prices are nudging $431, up from $163/t in February.
“It is not viable to make DRI when coal is so highly priced,” said a source.
Pellet prices head north: Export prices of pellets, a key input for induction furnaces, have also spurted as China ramped up production after the Winter Olympics. There is demand from the ex-China markets too which will only make pellets dearer, as Ukraine’s pellets maker Ferrexpo declares force majeure which will hit supply. The Fe63% pellets (DAP Raipur) prices gained 9% m-o-m to INR 12,420/t (INR 11,380/t). Pellet prices have seen an uptick since Dec’21 but showed mixed trends as the market awaited clarity. EU demand for prompt cargoes has risen in the wake of the Russia-Ukraine war which will boost prices.
Peak construction season: Consumption has been good, supporting the higher rebar prices. January-March is traditionally the peak domestic demand period for longs since construction picks up and sustains till May, ahead of the monsoon’s onset in June.
Since secondary mills contribute almost 70% of the market, when their prices rise, primary mills follow suit. BF-route prices are slated to increase by INR 1,000/t in the current month.
Consumer durables to keep HRC supported: Demand for flat products is gaining ground, keeping HRC supported. Mills are bracing for a hike of around INR 1,500/t in March. The approaching summer usually boosts domestic demand from the white goods sector, especially for refrigerators and air-conditioners. The consumer durables industry is betting on strong 12-20% growth in summer sales in 2022 over 2019 levels.
Auto demand may rev up: Automotive demand is also likely to stage a comeback on eased semi-conductor supply and keep HRC firm. In fact, January’s total vehicle production has already improved to 18.61 lakh units against Nov-Dec’21’s around 16 lakh units.
Outlook
The Ukraine-Russia war has changed the scenario drastically. It is difficult to predict the spread going into March. However, prices will certainly remain on the higher side, pushed up by costlier raw materials.
In the short term, many secondary mills may temporarily close down or cut production.
Flats are invariably driven by the exports market. If global steel prices escalate, China may find it lucrative to jump into the exports fray, which may make Indian mills a bit uncomfortable.
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