- Longs perform better due to pre-monsoon spike in demand
- Export duty keeps flat steel sentiments down
- There is room for further downward correction in prices
Morning Brief: SteelMint’s India Steel Composite Index inched down 1.1% to 158 points on 17 June, 2022. W-o-w, the index fell negligibly from 159.85 points on 10 June.
In the week under review, the longs index performed a shade better by moving into positive territory after nearly two months, at 155.1 points (compared to the previous week’s 155 points).
The flat steel index inched down further by 2.36% w-o-w to 161.1 points. It has been in freefall for over two months now.
Longs performance better
Rebar demand up: The longs index performed better because rebar sales were higher due to a pre-monsoon spike in demand. Infrastructure project developers scrambled to complete some portions of their construction before the monsoon, which, as per reports, has already arrived in a few parts of India.
Wire rod sales sluggish: However, wire rod sales have declined. Exports of the material from India more than doubled in 2021, to around 1 million tonnes. Now, after the export duty imposition, export viability has reduced with the material coming into the domestic market, increasing supply.
Flats still in bear territory
No major export bookings: The flat steel segment has been registering a fall for over two months owing to rising inventories and subdued demand sentiments.
No major export bookings have been reported this week. Only small parcels of alloy-added hot rolled coils (HRCs) have been booked to Vietnam at $740-745/t CFR. Mills are avoiding offers for usual material since this would attract the 15% export duty.
Some slabs offers were discussed at $680-700/t FOB levels for Europe while SteelMint heard of granulated pig iron (GPI) being offered too, albeit in small volumes. These two items are off the export tax radar.
Thus, flats, which comprised 80% of Indian steel exports, are under pressure.
Steel delegation communicates ‘pain points’ to finance minister: An Indian steel delegation, led by the Indian Steel Association (ISA), met finance minister Nirmala Sitharaman on 16 June, seeking a review of the recent-imposed export duty. The delegation informed the finance minister of the “pain points” of the industry. The minister gave a “patient hearing” without committing anything, SteelMint learnt from highly reliable sources.
Earlier, market circles had been rife with speculations that the team met the minister regarding a possible relook at the export tax.
Outlook
There are possibilities of further downward corrections in steel prices in the short term with raw material prices showing declines. However, these corrections may not be as steep as seen so far in June (prices have declined by over 10% in the last one month). Thus, mills may have room to absorb the corrections.
Globally steel prices are high essentially because of the high energy tariffs. However, India has started booking Russian cargoes at competitive prices in the last few weeks. As per reports, consignments have been booked at a discount of up to 30%. This initiative could lead to an improvement in coal supplies and ease raw material prices and in turn further support corrections in finished prices.
The overall impact of the raw material price corrections on the cost of production will be felt in the next quarter.
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.
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