SteelMint India steel index sees steepest 5% fall post- export duty restructure

• Mills withdraw export offers in flats and longs
• Domestic buyers hold back in falling market
• Mills may further lower prices in June

Morning Brief: In a knee-jerk reaction to 21 May’s late evening announcements on duty restructuring by the government, SteelMint’s India Steel Composite Index lost further ground. It closed -5% lower w-o-w at 169.1 points on 27 May, 2022. This is the steepest fall it has seen since its inception in the second week of January, 2022.

Both the long and flat indices are seeded into the composite index and influence the final weekly outcome. The India Steel Long Composite Index fell 6% while the India Flat Steel Composite Index fell 4%, both w-o-w.

Factors that pulled down the index-

Flat products:

• Exports take a hit: Mills withdrew their export offers after the announcement of the 15% export duty on clad, plated or coated flat rolled products of iron or non-alloy steel of 600mm in width or more. Mills are weighing the status of the export deals already executed or for which LCs have been opened. They also want to know the implications of the duty on the previously-concluded deals, which are yet to be dispatched/honoured.
  Moreover, buyers in Europe are also holding back on the premise the market is yet to bottom out.

Meanwhile, it is learnt vessels which have received customs clearance will not attract the 15% export duty. But those which are yet to be customs cleared, will come under it.

• Domestic buyers hold back: On the domestic front, trade-level prices of hot rolled and cold rolled coils have been falling for seven straight weeks due to the slow buying interest from the end-user segment. They are currently holding back even more in anticipation that domestic prices will fall further as mills’ export plans are in disarray at present.

SteelMint’s benchmark ex-Mumbai price assessment for HRCs stood at INR 65,500-66,500/t ($843-856/t), steeply down by INR 3,200/t ($41/t) w-o-w, while CRC prices fell by INR 3,500/t ($45/t) to INR 75,500-76,500/t ($971-984/t). Prices exclude GST at 18%.

Longs

• Mills withdraw export offers, await clarity: As with flats, in longs too mills withdrew rebar export offers post-export duty announcement, especially for markets like Hong Kong etc. They sought clarity on the implications of the duty. Deals for Middle East-based mills were heard concluded but at around $735/t CFR Hong Kong — prices lower by $15/t w-o-w.
  
• Domestic trade discounts cut no ice: Domestically, in finished longs (IF route), sellers offered trade discounts in a lacklustre market but to no avail. In rebar, wire rods and structures overall, end-users are still procuring as per needs even though prices have been moving down for the last few days. Bulk trade and transactions remained absent in the spot market. Suppliers offered discounts as per movement of raw material prices.

BF-route rebar, ex-Mumbai, have fallen to INR 64,500/t ($830/t) against INR 66,500/t ($856/t) last week. IF-route is at INR 55,000/t ($708/t) from INR 58,500/t ($753/t) a week ago.

Outlook
Mills are staring at further price corrections in June. However, it seems, they are waiting for the market to stabilize before announcing any more corrections.

Meanwhile, although the longs component of the auto contracts has been finalized, the flats are still pending. Once concluded, this may pep up prices.

Many in the industry feel the export tax is a temporary imposition and once prices cool down the same may be withdrawn. The Indian Steel Association (ISA) has sought its rollback, saying LCs for 2 million tonnes of export orders have been raised which should not attract this export duty.

The India Steel Composite Index
The India Steel Composite Index is assessed on a weekly basis: every Friday at 18:30 IST, as per the weighted average prices based on manufacturing capacity and production.

SteelMint considers the Composite Index with the base year being 3 January 2020 (financial year 2019-2020) and the base value as 100. The Composite Index does not give the absolute price. The Indian steel industry is broadly classified into the BF-BOF and the electric/induction furnace routes. Keeping this broad classification in view, SteelMint proposes to release the Composite Index by considering both production routes by manufacturing capacity and the production weighted method to compute the index for India. For details click to view the methodology document.