- Flat steel traverses negative zone for 12 weeks
- High thermal coal prices to impact electric furnaces in medium term
- Maintenance shutdown by tier-1 mills to help restore prices, especially for flats
Morning Brief: Again, it was the long steel index, propelled by firm secondary sector longs prices, that pulled back the SteelMint India Steel Composite Index into positive zone after a week.
The composite index inched up a marginal 1% 159.8 points on 8 July, 2022. The India Flat Steel Composite Index lost 0.32% w-o-w to end at 156.9 points but the India Long Steel Composite Index was up 2.30% to 162.6 points.
In fact, the long steel index has been rising for four weeks in a row, while flat steel has been falling steadily for 12 consecutive weeks.
Factors keeping long steel prices supported
The secondary sector (electric furnace mills) enjoys an overwhelming 60-65% of the long steel market in India. Therefore, its price trend has an overall influence on primary mills’ strategies and also on the index.
The cost push is keeping secondary sector prices firm
a) Pellet prices up amid scarcity: A key reason is the rise in pellet prices. Even if the primary mills are cushioned from market vagaries thanks to their captive mines, the secondary mills are getting buffeted by price swings. Pellet prices have been rising for some weeks now on higher demand and tight availability. Demand is up because mills prefer pellets over iron ore in the monsoons due to the high moisture content in the latter. Moreover, monsoon-induced logistics issues are adding to the supply crunch.
That apart, OMC’s auctions are receiving a weak response due to an increase in the base price. At the last auction, out of 2.77 million tonnes (mnt) on offer, only 0.17 mnt received bids, leading to a fall in supply to EAF-IF mills.
In Bellary, pellet prices climbed to a month’s high amid confusion over evacuation modalities of iron ore after the Supreme Court allowed resumption of exports from Karnataka mines. Iron ore sales fell to a two-year low to less than 1mnt in June, resultantly.
b) Thermal coal prices remain on higher side: Thermal coal, a key input for the power-intensive electric furnaces, has also helped to keep secondary prices firm. With Coal India focused on meeting the increased summer demand of the power sector, the non-power sector has remained starved of domestic coal.
On the other hand, imported thermal coal prices have remained elevated especially since March because of changed trade dynamics with the onset of the Russia-Ukraine war. As per some reports, thermal coal prices have surpassed coking coal’s because of the changes trade dynamics in the energy sector.
From the Indian context, 35-40% of crude steel production happens through the route using thermal coal. And with sanctions on Russia to kick in from August, the coal situation is not likely to ease anytime soon.
c) Scrap remains expensive: Domestic scrap prices rose on cue from the rise in semis and finished prices. IF-grade billet prices gained by INR 500-3,100/t in the current week while rebar gained by INR 600-2,500/t (Fe 500).
Imported scrap prices are heading north with Turkey returning to the market and also because of a weakened rupee against the dollar. Buyers are wary of booking because of the sliding rupee.
d) Primary mills to raise rebar offers: Primary mills, after rolling over their rebar prices for project sales, are looking to raise the same from next week. Maintenance shutdowns by tier 1 mills will lead to production cuts and consequent lesser supply of longs and support the firm prices.
Flats still on a weak pitch
On a positive note, domestic trade-level prices of flat products witnessed a mixed trend this week. While HRC and CRC prices dropped marginally, plates remained range-bound and value-added coated products saw a marginal increase.
Flat steel prices have been steadily falling ever since Europe stocked up well immediately after the war outbreak. Even as demand started dwindling, the export tax was slapped which stunned mills into silence. Exports came to a halt for two weeks. Thereafter boron-added hot rolled coils were offered but had few takers in Vietnam and the UAE.
Outlook
But, have prices bottomed out for both flat and long steels?
The maintenance shutdown will offer solace to both flats and longs. The drop in crude steel supply will recalibrate the demand-supply mismatch and possibly support flats prices too, going forward. Moreover, there is little inventory at the distributor-level due to lack of buying interest since April which creates a case for a hike in offers from mills.
Primary mills are slated to increase rebar prices for projects soon, which would keep overall longs prices supported in the near term.
Thermal coal prices may have dropped a little w-o-w, due to reduced monsoon demand. But, at least in the medium term, these are likely to stay elevated because of frenzied demand for coal-fired power generation in Europe. Thus, coal will continue to remain an issue with the electric furnace mills, especially those dependent on imported fuel, and keep production costs high.
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 but a trend of the market. 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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