The conversion spread (margins) from induction furnace (IF)-route steel billets to wire rod fell by 12% in Raipur, central India but increased by the same percent in Durgapur, eastern India, m-o-m, in May 2022, SteelMint’s assessment shows. On a monthly basis, the average conversion spread was recorded at around INR 4,317/t in Raipur and INR 5,002/t in Durgapur in May.
Raipur and Durgapur markets are the major supplying centers of IF-wire rods to the various consuming regions across the country. The daily wire rod production of these two markets stands at around 10,000-11,000 t and 6,000-7,000 t, respectively.
However, currently a few prominent integrated mills specifically in Raipur have halted production and shifted to selling other commodities as they get better margins as compared to wire rods.
Factors impacting wire rods margins in May-
Fall in prices: Higher prices in the previous month didn’t support the bulk trading activities which led to a price drop in May. In addition, the import-export duty imposed by the Indian government on various steel products as well raw materials to control price inflation highly impacted the sentiments in the secondary wire rod market. Considering these factors and raw material price movement, wire rod manufacturers adjusted trade prices to an average of INR 55,211/t in Raipur, decreasing by 9.3% and INR 55,573/t in Durgapur, falling by around 8% in May.
Dull export enquiries: In May, total exports of wire rods from both the route i.e induction furnace (IF) and blast furnace (BF) to Nepal stood at 9,042 tonnes, a drop of 10% m-o-m. Indian mills sticked to the domestic markets for sales due to lesser realisation in exports, SteelMint learnt.
Notably, Nepal is the major importer of Indian wire rods and total volume exported to Nepal from India in FY22 stood at 225,483 t. Recently Nepal government imposed a 10% import duty on wire rod having HSN code 7213.91.10 and 30% on MS wire 22Swg having HSN code 7217.10.20. This is likely to impact wire rods exports from Indian mills in the coming months.
Limited trade, buying enquiries: Purchase enquiries and transactions in wire rods in the spot market were lower due to higher prices, forcing manufacturers to cut prices and work on limited margins, mainly in Raipur market. High volatility in semi-finished steel prices and uncertain trends created fear among traders regarding bulk procurement. To liquidate the material, resellers offered trade discounts up to INR 2,000/t. Meanwhile mill owners adjusted their offers according to the price movement to control bring down heavy discounts via resellers.
On the other side, end-user industries of finished products, like galvanised wire, barbed wire, binding wire industries who use wire rod and HB wire as a raw material also observed weak trade despite 50% production cut. They procured wire rod on need-basis only, specifically in Raipur, leading to the fall in wire rod conversion.
Outlook: Wire rod prices are expected to see more corrections in the coming days with the monsoons approaching as this will limit spot trades. However, prices will continue to be driven by the raw material price movements. Trade is less likely to take place at higher prices which may curb further hikes. The conversion spread may fluctuate by 10% in the near term.
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