- Longs lose price support as raw materials rationalise and monsoon hits demand
- Flat steel sees some demand flicker and low inventories with stockist
- Prices likely to be range bound in short term
Morning Brief: The SteelMint India Steel Composite Index dropped 1.3% to 157.6 points in the week ending 22 July, 2022. The longs index was down 2.34% w-o-w while flats were almost stable, with a negligible 0.13% dip.
Factors keeping flats supported
In flats, the price fall has been stalled at present, both at the mill and trader levels.
1. Demand flicker: A flicker of hope is seen among producers and sellers as a semblance of buying, absent for a substantial period, has returned to the market. The reason is the absence of inventory at the mill level on the back of production cuts and at the trader level due to lack of stocking. “Demand is creeping back,” corroborated a trade source.
But, this faint onset of demand will not be enough to push up prices. Mills have given indications that their prices may be rolled over for early August sales but the trade level buzz is that there can also be a marginal downward correction in flats – across mills and stockists – early next month.
2. Russian imports not really viable: Where hot rolled coiled (HRC) imports from Russia are concerned, domestic primary mills can heave a sigh of relief since these consignments are not eventually turning out to be viable from the price perspective.
Entities who booked such cargoes say they are incurring losses on the same, because of two reasons: First, these were forward bookings, done at rates thought were viable. For instance, landed prices of the consignments were at INR 51,000-66,000/t ($638-826/t) in rupee parity to the dollar. In comparison, trade-level HRC prices had averaged INR 62,000/t ($776/t) in June. However, the sliding rupee, which is breathing down 80 to the dollar, has spoiled the parity. Moreover, these deals are happening in yuan for onward processing to roubles which has appreciated, diminishing arbitrage opportunities for buyers.
“Going forward, these imports are not likely to happen in significant volumes because of lack of price viability. The consignments coming in are high-priced,” said an importer.
3. Much hinging on export tax: There is almost complete silence on the exports front. Europe is still very quiet but expected to return to the market in August-September. Vietnam is buying cheap from China and thus is not interested in India. Moreover, its EU buyers are subdued. The Middle East completed a few bookings last week and thus no new ones are expected this week. Indeed, the last few weeks were quiet and the trend will continue. Some boron-added exports have happened to Nepal but at highly competitive prices.
The question in industry circles now is for how long can mills continue with their production cuts?
“Mills have not reduced prices essentially because the production cuts have balanced out the demand-supply ratio. But for how long? Operating at 80-85% capacity utilization is not a viable option because mills will soon incur losses. If export tax is not reduced or rolled back and exports continue to remain low, mills will still have to return to their optimal capacity utilization to avoid losses. In such a scenario, prices may fall further,” said a source.
However, if there is a reduction or rollback of the export tax say in the next one month, then chances of prices falling are slim. Meanwhile, the steel industry is continuing to lobby with the government on removal of the same.
Longs prices rationalise
This segment had remained somewhat range-bound for a few weeks, propped up by iron ore and coal supply and price issues. There was less lifting of material with NMDC and OMC auctions receiving rather lukewarm responses, which led to scarcity of material in the market.
However, some factors helped to rationalize longs prices last week.
1. Iron issues resolved to an extent: The iron ore scenario improved since then although availability is still tight since production drops sharply during the rainy season. Sponge iron manufacturers, in any case, prefer pellets to iron ore in the monsoons because of the higher moisture retention in the latter.
2. Monsoon affecting longs demand: With the monsoon well-entrenched across India, open-air construction, especially of infrastructure projects, has taken a hit, driving down longs demand.
3. Exports are very dull: Exports of rebar and wire rods are dull. If the market expected some movement in billets and slabs, such hopes have been dashed by cheaper Chinese and Indonesian counterparts. Indian mills cannot sell at their aggressively low prices.
Short-term outlook
There can be a rollover in flats prices or even a marginal fall from mills in early August. But chances of an uptrend from here are definitely slim.
Even longs prices, which held firm for a few weeks, look unlikely to go up from current levels.
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