Falling Imported Scrap Prices likely to hit Indian Sponge Iron Offers

Indian market may witness decline in Sponge iron price on the backdrop of falling imported Scrap price.

The steep fall in imported Scrap offers has led to correction in domestic Scrap and Sponge prices. Imported Scrap offers have declined to around USD 25-30/MT in last few weeks. Falling Iron ore and coal prices in the global market has encouraged Chinese manufacturers to offer semi finish and finished steel at discounted price.

Indian steelmakers fear that falling Scrap prices may put pressure on Sponge iron prices despite uncertain supply of Iron ore and coal in the domestic market.

“At present, it is cheaper to use imported Scrap than domestic Sponge. Current offers for HMS 1&2 from Europe are USD 345-350/MT CIF Nhava Sheva,” said an induction furnace owner based in Wada (Mumbai).   

However, many mill owners hold a contrarian view on this. Raipur based mill owner while talking to SteelMint said that there is acute shortage of Iron ore in the domestic market and procurement of coal is also a major issue now. If prices correct further, many Sponge iron units will be forced to shut down their operations.

In the domestic market, Sponge iron prices have corrected by INR 200-400/MT W-o-W. While, in Raipur and Bellary, prices have declined by INR 150/MT and INR 300/MT respectively. Market participants blame poor demand in the finished steel market is one of the reasons for this correction. Also, Billet prices have fallen by upto INR 1,000/MT in week’s time.

International Market

The present scenario of global market is poorer than before. Scrap prices in Turkey hit 17 months low and currently trading at USD 340/MT CFR Iskenderun. Supply of cheaper Chinese Billet & Rebar is giving tough competition to global manufacturers and low priced Seaborne Iron ore is also building pressure on Scrap prices.

The continuous fall in exchange rate is resisting Indian importers to purchase even at cheaper rates.

An industry veteran commented, “Exchange rate will play a crucial role in determining the level of Scrap prices. Currency conversion and hedging become important expenses for us that cannot be neglected.”