India rebar prices may have peaked. What factors to watch out for?

• • Rebar prices from primary mills correct downward
  • Weak demand, high inventory, low exports impel price revisions
  • Demand may rise from July-August as infra segment returns to market

Morning Brief: Indian primary mills corrected downward their rebar prices for early May, 2022 sales by INR 2,000-4,000/t.

Trade-level blast furnace-route rebar prices also inched down around 3% in May to INR 71,000/t levels since April.

Meanwhile, the spread between BF and IF grade rebar more than trebled in April and May on the former’s price rise, compared to March levels of INR 2,900/t with the latter labouring under power challenges and reduced production.

Why have prices corrected downward?

1. Project segment demand drops
“There is limited demand currently. Only need-based procurement is happening,” said an official with a large infra company.

“If a part of any project can be deferred by 3-4 months, we are doing so. Only those works with strict deadlines or which do not factor in cost escalations are being undertaken. Moreover, we do not want to keep labour idle,” informed a project source.

Why did demand drop? Prices, emphasized all project sources. Quotes from the primary sector touched “unworkable” INR 76,000-78,000/t levels in April, making buyers recede to the sidelines. “Geopolitical tensions led to such an unviable price rise,” said a source.

In fact, the scenario changed sharply in April-May from end-February-March, when the market saw frenzied restocking and panic buying amid the onset of the Russia Ukraine war and speculations of further price rises.

As a result, April saw developers well stocked and buying less. Around February, prices touched INR 62,000-65,000/t from primary mills, depending on the grades. However, after mid-March, prices rose by around INR 15,000/t.

2. Exports show decline
Export sales started dipping in April. Mills were comfortable in terms of shipments but fresh bookings were elusive. India was exporting at a rate of 1.8 million tonnes (mnt) per month out of which longs’ share was around 40%.

Reasons for lower exports: China’s Covid lockdown led to lower domestic sales and a more aggressive exports focus with HRC prices to Vietnam touching as low as $790/t CFR recently, and spoiling Indian mills’ chances.

Moreover, Russia is back in exports after a hiatus, with attractive offers. That apart, Europe is well-stocked post-its panic buying and user-segments there are awaiting the revised quotas before placing orders.

3. Inventories rising at mills
Consequently, mills, dealing with a double whammy of thinning domestic and export demand, are saddled with inventory at present. Rashtriya Ispat Nigam Limited’s closing stock in early April was up 47% m-o-m and other mills are possibly holding relatively higher volumes. Therefore, availability of material is not a challenge as it was in March.

4. Drop in raw material prices: There is higher raw material availability and prices of the same have dropped m-o-m. Prices of coking coal are down 18% m-o-m and domestic iron ore from Odisha by 8-15%. “Fiscal year-end prices of coking coal and iron ore fell, so the cost of production reduced for the primary mills, allowing them to drop prices,” said a source.

Have prices peaked?
Indian rebar prices have peaked, feel participants. “There were expectations when mills quoted their peak levels in April, that prices had peaked and would only head south from here and so they stopped buying,” informed a source.

Currently, projects are being offered anywhere between INR 72,000-74,000/t, a sharp drop from the INR 76,000-78,000/t levels of April, depending on volumes and grade.

“Prices are still much higher than what they were a year back, when most of the current constructions took off. If there is a drop of another INR 5,000-7,000/t from the current levels, that would trigger buying,” informed a source at a large private infra company.

Outlook
Even if the secondary producers continue to feel the coal shortage heat, higher power tariffs and frequent and long outages, prices from the primary mills are not likely to rise from current levels because the monsoon will set in from next month. “Demand will reduce and we are expecting more downward corrections. So, lesser supply in the market will not allow primary mills to raise their prices,” revealed an infra official.

Prices will remain stable for another month and then may start dropping, corroborated another source.

Prices will possibly start rising from August since the monsoon recedes from northern India by this time. The infrastructure industry is very active over August-March. In fact, it starts planning its procurement roadmap as per its project milestones from August.

“Players stock up from August till December to avoid procuring in January when prices usually start rising,” said a source.

China’s emergence from lockdown may reduce exports supply and pep up Indian prospects.