Indian rebar price rise narrows gap with HRC to 9-month low

• Rebar-HRC spread narrows to INR 2,200/t in March
• Sharp rise in rebar prices narrows gap
• Coal inflation forces secondary mills to raise prices
• Secondary prices goad primary mills to hike offers
• Downward correction expected as domestic demand takes a hit

Morning Brief: The trade-level rebar-HRC spread in March, 2022 has hit its lowest in the last nine months at INR 2,200/t ($29/t), reveals data maintained with SteelMint. The peak had been seen at INR 15,925/t ($209/t) in June, 2021.

As per the last price assessment, the average monthly trade-level blast furnace route rebar was pegged at INR 71,300/t ($939/t) in March against HRC’s INR 73,500/t ($968/t). A m-o-m study reveals that it is rebar that has escalated to narrow the gap with hot rolled coils (HRCs) to a nine-month low. Average March rebar prices have increased m-o-m by INR 9,300/t ($122/t) against HRC’s INR 7,200/t ($95/t). In early March, mills had announced a price hike in long products by INR 4,000-5,000/t ($53-66/t) against INR 2,500-3,000/t ($33-39/t) in flats.

Factors influencing narrowing spread

• High cost of production pushes up rebar: The secondary mills’ cost of production increased sharply, fuelled by the runaway coal inflation and tight domestic availability. Imported South African RB2 prices were a shade below INR 25,000/t in the second week of March compared to INR 10,000/t levels in the second week of December, 2021, up more than two-fold. Secondary mills control two-third of the rebar market and when they raise their prices, primary mills are also bound to hike theirs since an average gap of around INR 3,000/t is always maintained.
• Project segment lends support: The government infrastructure construction segment has year-end deadlines to meet and, therefore, even if prices of construction input materials rise, projects cannot be stalled and procurement continues. Sometime the cost escalation is woven into a contract, at other times, not. Thus, project developers take a hit with some projects while passing on the cost escalation to the project owner in other cases. But, eventually, some procurement does happen in March and which also helped to keep the price sentiments firm for rebar this year despite the project segment lowering procurement by 30-40% and resorting to only need-based purchases.
• RINL’s lowered crude steel output impacts rebar supply: RINL, which is a big contributor to the rebar segment, had one of its blast furnaces out of service since end-January, 2022.

The raw materials cost push is keeping the third BF still idle, reliable sources informed SteelMint, which has led to a drop in hot metal and crude steel output and resultantly, a drop in rebar supply.

Outlook

The high steel prices are driving downstream sectors to the sidelines. Thus, secondary sector rebar prices are already in the process of correction. For instance, central India induction mills have reduced rebar prices by INR 1,500/t ($20/t). Declining demand and falling sponge iron and billet prices triggered the drop. Primary mills, which have not yet taken any corrective action, are likely to follow suit. “Overall economic activity is becoming sluggish because of the high steel prices. The mills thus now need to strike a balance between demand and prices,” said a source.