SteelMint’s India steel price index falls further under duty revision impact

• Steel composite index drops further 2.9% as market still reels under duty impact
• Prices drop but domestic demand elusive in falling market
• Inventories building up on lack of export demand

Morning Brief: After seeing its steepest fall of 5% the week before, SteelMint’s India Steel Composite Index showed a further 2.9% drop in the week ended 3 June, 2022 to closed at 164.1 points.

Both the long and flat indices are seeded into the composite index and influence the final weekly outcome. The India Long Steel Composite Index fell 2.47% while the India Flat Steel Composite Index fell 3.39%, both w-o-w.

Obviously, the market overall is still reeling under the impact of the recent steel export duty impositions and revisions. Sellers have no option but to reduce prices as inventory is building up on lack of exports. Buyers are happily waiting for further price reductions in a falling market.

Factors that sustained the downtrend

Flat products

Mills reduce list prices: In flats, mills reduced their list prices for June sales to lure buyers.

SteelMint’s benchmark assessment for hot rolled coils (HRCs) for trade segment dropped by INR 2,300/t ($30/t) w-o-w to INR 63,500-64,500/t ($818-831/t). Cold rolled coil (CRC) prices fell by INR 2,800/t ($36/t)to INR 72,500-73,500/t ($934-947/t), exy-Mumbai, and exclusive of GST @ 18%.

Export offers dry up: With the export duty imposition, primary mills’ export plans have gone haywire. There were no export offers in the week under review, because, a) global prices are down; b) Indian mills do not want to sell at the levels overseas prices are hovering at.

SteelMint heard that Indian mills were offering HRCs with alloy additions at $810-830/t CFR UAE but there was no firm buying interest.

End-users happy but not buying: The domestic end-user segment is not buying, except when required. They are happy that prices have dropped but would rather wait for some more time before procuring.

Inventory build-up: Thus, inventory is heard building up at the mill-level due to lacklustre home and away demand.

Long products

Mills reduce rebar prices: As with flats, primary mills also lowered their rebar list prices for early June sales following the government’s imposition of the 15% export duty on bars and rods of iron or non-alloy steel.

SteelMint’ BF-grade rebar trade reference prices are down by INR 3,000/t ($38/t) to INR 62,000/t ($799/t) ex-Mumbai, and INR 63,500/t ($818/t) ex-Delhi.

Mills had little option but to lower prices as a) buyers have moved to the sidelines waiting for further price reductions; b) they are seeing some amount of inventory build-up as exports have taken a hit.

Exports take a hit: Mills withdrew offering to markets like Hong Kong and elsewhere with Russia offering at rock-bottom prices.

Monsoon demand thins down: Demand for rebar is particularly down because the monsoon is round the corner, a period when construction activity slows down. Procurement is still need-based and sales highly erratic.

For instance, RINL, a major rebar producer, has seen its stocks rise 41% m-o-m or 63,000 tonnes in May.

BF-IF grade spread narrows: The spread between BF-IF grade rebar has narrowed lately to INR 3,000/t ($38/t) against INR 8,000/t ($103/t) levels in April-May. This has encouraged government and private project developers to prefer IF-grade material.

However, even IF-route sales were limited this week across regions. Highly volatile and uncertain price trends in semi-finished impacted sales.

Outlook
In longs, buyers are comfortable with the price levels. However, a substantial percentage of demand will taper off because of the monsoon onset. Projects buy on a monthly basis and stocking up on inventory when prices are low is not an option since capital gets blocked and prices may fall further.

In flats, eventually, mills will have to return to the export market since around 15-20% of their production is sold overseas which will not get absorbed in the domestic market.

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.