- Large mills keep contract prices for project sales firm, may hike next week
- Price spreads between primary and secondary narrows
- Maintenance shutdowns to support BF-grade price hike
Indian primary mills have rolled over their monthly contract prices of rebar for the project segment for early-July sales, SteelMint learnt from reliable sources.
The rolled-over offers from two primary mills are hovering around INR 59,000-60,000/t ($741-754/t) while another is quoting a tad lower at INR 58,000/t ($729/t) FOR.
However, there is a catch. Mills have communicated to project segment buyers that they will have to “lock in” their requirements soon, since, from next week, onwards prices have chances of increasing.
The infrastructure and construction segment consumes a leading over-50% of India’s steel.
Why are primary mills eyeing a rebar price hike?
a) IF-route prices stay firm
Primary mills have noted that prices of induction-furnace (IF) route rebar, which enjoy 60-65% of the market, have not lessened sharply in these past few months. SteelMint data reveals that trade-level IF-route rebar from Mumbai have fallen 13% to around INR 54,000/t ($678/t) at present compared to INR 62,000/t ($799/t) three months back. Ex-Raipur rebars shed 9% in the same period but BF-route prices have taken a sharp 21% drop from INR 74,000/t ($930/t) to the current INR 59,000/t ($741/t) levels.
The IF players are unable to lower prices mainly because of the following factors:
1. Iron ore and pellets supply shortfall: Iron ore and pellet prices increased as IFs experienced a supply crunch of the same. The scarcity stemmed from the increase in the auction base prices at OMC, India’s second-largest merchant miner. The price increase saw poor offtake, including from the overwhelming 70% of its long-term customers. This led to a supply crunch and an increase in pellet prices. Thus, the pellet index has been rising for the past few days.
Confusion over ore movement modalities in Karnataka: Moreover, there was confusion relating to movement of iron ore post-the Supreme Court lifting curbs on exports of iron ore from Karnataka’s districts which had seen the most rampant illegal mining many years back. This scenario also led to a supply shortfall.
2. Coal prices still elevated: With Coal India focused on supplying to the power stations, secondary units, especially sponge iron, are now highly dependent on imported thermal coal, whose prices touched record highs of INR 22,000/t ($276/t) in May and have remained elevated since. Gangavaram portside prices of imported RB2 are still hovering at over INR 18,000/t ($226/t), a far cry from the INR 11,000/t ($138/t) seen 7-8 months ago.
3. Volatile currency limits imported scrap bookings: There has been limited bookings of imported scrap, a vital feed for IFs, leading to supply crunch. Buyers have been less active against the backdrop of the volatile currency exchange rates. Most scrap cargoes are of US or Europe origin. With the long travel distance involved, IFs are wary that prices may rise further between origin and destination shores.
4. Secondary sector production drop: The steeply hiked power tariffs (because of costlier thermal coal) have forced the secondary mills to curtail production by around 30% which means lesser rebar supply, a fact that is also keeping prices firm.
5. Pre-monsoon buying lent support to prices: Post-the 15% export duty imposition, buyers had receded to the side-lines awaiting market clarity and further fall in prices. The lack of buying led to a drop in distributor-level inventories. But pre-monsoon buying by projects lent support to prices.
b) Primary mills take production cuts
With the 15% duty hitting exports hard, mills saw an inventory pile-up. They promptly opted for a maintenance shutdown a couple of months ahead of schedule to restore the supply-demand imbalance. This will lead to a rebar production drop and help to keep BF-grade prices supported.
Outlook
There could be an increase in BF-route rebar prices in the very near term supported by secondary sector prices — which are expected to remain firm because of the cost pressures.
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