- Prices of both HRC, CRC in freefall since April
- Lack of export, domestic demand pressure prices
- Supply-demand recalibration, auto contracts may support prices, going forward
Morning Brief: The spread between the benchmarked hot rolled coils (HRCs) and cold rolled coils (CRCs) has dropped almost 50% in the last one year, reveals data maintained with SteelMint. From a record high of over INR 16,000/t ($204/t) in June 2021, it dropped to INR 8,400/t ($105/t) in June, 2022.
On the other hand, looking at the last six months, June’s spread indicated a recovery of 162% from January 2022’s all-time low of INR 3,200/t ($40/t).
However, the spread has been narrowing steadily since April. In fact, if HRC prices fell m-o-m in May by INR 6,200/t ($78/t) and CRC, by INR 6,500/t ($82/t), then June saw a deeper m-o-m drop by INR 7,800/t ($98/t) and INR 9,000/t ($113/t) respectively. And, compared to April, HRC prices are significantly down by INR 14,000/t ($176/t) and CRC, by a chunky INR 16,000/t ($201/t).
As can be seen, prices of both are in a freefall m-o-m, narrowing the gap in tandem.
Factors narrowing the spread
1. Lack of exports demand: HRC and CRC prices have been correcting under the pressure of the 15% export tax, which brought overseas sales almost to a standstill. Since flat steel comprises 80% of Indian steel exports, and exports in total comprise almost 20% of India’s semi- and finished steel production, this volume will not be absorbed by the domestic market.
So far into 2022, flats have comprised 71% of India’s total steel exports of 7.30 mnt over January-May. Within flats, HRCs enjoyed a leading 61% share. Thus, with exports almost stalled, steel producers have had to correct prices significantly to lure back domestic buyers.
“HRCs are currently ruling at an estimated INR 59,500/t ($749/t) and CRCs, at INR 68,500/t ($862/t) — this is a far cry from INR 76,000/t ($957/t) and INR 86,000/t ($1,082/t) level seen in both respectively in April. This drop is mainly because of lack of exports demand,” said a market source.
2. Dull domestic demand: Domestic demand is not that great for both HRCs and CRCs, a trade segment source observed, pinning it down mainly to higher supply at the mill level. “In the auto sector, a huge consumer of CRCs, the schedules are as per plan with a tremendously long waiting period. So, I think, it has more to do with higher supply compared to demand, which is depressing domestic demand currently,” the source informed.
3. International prices lower than Indian: Indian prices are at a premium compared to international, at present, offering room for further corrections. The benchmark HRC futures on the Shanghai Futures Exchange (SHFE) settled at RMB 4,092/t ($608/t) yesterday. HRCs (3-mm+S275) imported into Europe, CNF Antwerp, are at $725/t while the 3-4 mm, CNF Western Europe, is at $760/t. Russian Black Sea export prices are at $600/FOB.
In dollar parity, Indian HRC prices are higher at $781/t. Global prices have been correcting since April, 2022 because of lack of demand, stemming from China’s Covid surge and lull in EU demand after its panic buying post-war outbreak.
4. Lack of demand from Europe: Demand from Europe is completely dead, observed a trade source. Steel user segments are hit badly by the spiraling energy prices in the EU. Hence, export demand is not likely to emerge out of the Continent in the medium term. And, if exports are under pressure, then there can be a direct downward impact on domestic HRC-CRC prices.
5. Inventory depletion at trade level: Meanwhile, a mill source informed that distributor-level availability was an issue which bettered in June and led to the spread narrowing.
Outlook
Indian prices are still at a premium. Will prices fall further from here? “It all depends on what the mills plan to do to recalibrate the supply-demand imbalance. The maintenance shutdowns may help that and help support HRC-CRC prices from here,” said a source.
Another source said the spread may not increase but prices of HRCs and CRCs will increase. “The spread will not go up because automotive contracts for Q2 will be lower compared to Q1,” the source said. Since auto is a major consumer of CRCs, closure of the auto contracts, expected soon, will give direction to domestic CRC prices in the short to medium term.
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