- High prices lead to fall in finished steel demand
- China’s production cuts weigh on pellet exports
- EU’s diminished appetite impacts flat steel
- Higher power costs reduce production
- Prices may show uptick if demand rises
Morning Brief: Steel and its input material prices showed mild corrections in April, 2022 after a few months of unrelenting northward movement. Prices across most commodities dropped in the range of 2-18%, a few remained flat and those which did see an upward movement, it was capped within a nominal 2-3%. This trend offered steel producers and end-users some breather.
Coal: The bi-weekly index tracking the average portside ex-Gangavaram prices of the South African RB2 5500 NAR remained almost firm m-o-m in April, 2022 at a steep INR 21,510/t against INR 21,480/t in March, 2022, which meant prices sustained their highly elevated levels m-o-m. This grade is particularly used by sponge iron units and buyers were hesitant to procure at such high prices.
The firmness was brought on by limited arrival of the material at Indian ports. With the war stopping exports of coal from Russia and Ukraine to the European Union and Turkey, these two geographies are sourcing from South Africa. Consequently, vessels are being diverted to these regions, making availability scarce on the Indian side, which is supporting the record-high price levels.
No auctions have been held for the domestic G9 grade (4750 k/cal) from South Eastern Coalfields (SECL) in April, amid tight domestic supply. In order to maintain adequate coal inventories at the power plants, state-run Coal India Ltd (CIL) has significantly reduced its offering in the e-auctions in order to augment dispatches to the power sector via fuel supply agreements.
Ferro alloys: Prices of the bi-weekly 60:14 grade silico manganese index emerging out of Raipur dropped 11% m-o-m to INR 105,400/t in March, 2022 against INR 118,700/t in March 2022. Prices dropped amid domestic over-supply and limited export demand. Overseas enquiries shifted to China which offered at competitive prices. Domestic steel demand dropped as soaring input costs made finished items dearer, sending buyers to the sidelines. Producers, saddled with inventory had no choice but to lower offers.
Coking coal: Average prices of the Australian low-vol HCC showed the steepest drop, by 18% m-o-m in April to $510/t against March’s $620/t. Prices swung wildly, rising by $59/t in the second week of April to $471/t CFR ($412/t), and then by another $19/t in the third week to $490/t CFR. These fell again by $7/t towards month-end to $483/t CFR. Prices dropped as supplies improved and restocking needs emerged but increased amid fresh EU sanctions on Russia although buyers avoided procurement.
The Russia-Ukraine war-led supply disruptions had made the EU turn to Australia, sparking a price rally like never-before.
Scraps and metallics: All showed a mild to moderate drop ranging from 1-10%, influenced by the cut in production from the electric furnace segment.
The pellet-based P-DRI, ex-Raipur, dropped 10% to INR 36,790/t in April, 2022 (compared to INR 40,900/t in March, 2022) amid falling billet prices. Chinese production cuts news weighed on pellet export orders which impacted domestic prices too. Global iron ore prices too dropped on concerns over a prospective drop in China’s demand for steel-making raw materials amid production cuts. Domestic demand was also not supportive on subdued finished steel sales.
Pig iron prices inched down 1% m-o-m to INR 58,220/t (INR 58,680/t) m-o-m. Decline in pig iron export prices, coal, coke and steel prices put pressure on domestic pig iron prices.
Domestic scrap (ex-Mumbai) index dipped marginally by 1% to INR 43,760/t in April, 2022 against INR 44,000/t in the previous month. Finished steel demand was tepid which also pulled down prices a little. The lower sponge prices acted as damper too.
Steel: This segment, comprising semi- and finished, saw prices dipping by 2-5% for billets, IF-grade rebar and wire rods. BF-grade rebar and hot rolled coils gained nominally.
The ex-Raipur billet index inched down 2% m-o-m to INR 55,920/t (INR 57,170/t) in April. Prices mainly showed a downtrend on lean finished steel demand.
The ex-Mumbai BF-grade gained a nominal 2% to INR 72,880/t (INR 71,250/t), while the IF grade dropped 5% to INR 64,930/t (INR 68,420/t). Wire rods (ex-Durgapur) dipped 3% to INR 60,380/t (INR 62,060/t).
Ex-Mumbai trade level HRC prices gained 3% to touch INR 76,030/t (INR 73,520/t) m-o-m.
The above prices moved in a narrow range, weighed down by higher power costs amid domestic thermal coal shortage which forced production cuts. Domestic demand too was limited and need-based. Exports remained subdued on lack of the EU’s buying appetite which also did not support raising domestic prices sharply.
Iron ore: This raw material, in terms of fines, lumps and the high-grade 63% pellets, dropped rose 8-15% m-o-m in April, 2022. Fe63% fines from Odisha were down 8% to INR 6,190/t (INR 6,750/t) while the Fe63% lumps (Odisha) dropped a steeper 15% to INR 8,890/t (INR 10,500/t). Fe63% pellets (DAP Raipur) also lost 14% m-o-m to INR 11,930/t (INR 13,810/t).
The price drop was propelled by weak demand for semis, and finished steel demand. Subdued pellet export offers and fall in sponge iron prices also contributed to the drop. Falling steel margins in China led to demand for low grade ore, which dampened sentiments further.
Outlook
SteelMint had predicted earlier that March prices were not sustainable and downward corrections were likely in April, which did happen.
Going into May, prices will likely remain subdued to whip up the pent-up demand. The production cuts have ensured that inventory levels are low, while pre-monsoon demand will emerge soon. This may support a price uptick in the short term.
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