The conversion spread (margins) from induction furnace (IF)-route steel billet to wire rod dropped 9% m-o-m in Raipur (central India), and 13% in Durgapur (eastern India) in August 2022, SteelMint assessments show.
The average conversion spread was recorded at around INR 4,000/t in Raipur and INR 3,740/t in Durgapur compared with July.
Notably, Raipur and Durgapur are the major markets for IF wire rod and, as per data maintained with SteelMint, the cumulative daily production capacity of these two markets stands at approximately 20,000 tonnes (t).
However, over the past few months some mills are not utilising their nameplate capacity, while a few mills, mainly in Raipur, have adjusted production as per market requirements.
Trades and buying enquiries: It was observed that purchase enquiries and transactions in the spot market remained limited in August. Around 52,350 t of trades were recorded in the Raipur market last month, down 10,650 t as against July.
In August, heavy rainfall in different parts of the country and festive holidays impacted trading activities. Manufacturers witnessed lack of buying enquiries and low trade volumes throughout the month, which led to limited future bookings resulting in marginal rise in inventories at mills.
End-user industries that consume wire rod and HB wire to manufacture finished products also witnessed weak buying enquiries, as many galvanized wire (GI wire) mills were either shut down or had reduced production up to 50%.
Apart from wire rod, demand for other finished long steel products such as rebar remained weak which affected demand for binding wire. Thus, softening demand slowed down bulk trading in the wire rod segment and only need-based procurements were seen throughout the month.
Price movements: In August, the average trade-level prices of wire rod fell by 1.5% to INR 52,860/t in Raipur, while prices fell by 2.9% m-o-m to INR 52,764/t in the Durgapur market. High volatility in semi-finished steel prices and uncertain market trends dissuaded traders from concluding bulk procurements. In order to liquidate material, resellers offered trade discounts of over INR 1,500/t. Mill owners adjusted their offers as per raw material price movements and to control heavy discounts being offered by the resellers.
On the other hand, the imposition of 15% export duty on finished steel products made exports unviable and, therefore, mills’ dependence on the domestic market grew. This naturally prompted an adjustment in production and prices by the mills that struggled to maintain their margins.
As mentioned, heavy rainfall, unclear price trends in semi-finished steel and lack of demand from end-users impacted spot demand for wire rod leading to a decline in the margins of manufacturers on a monthly basis.
Outlook: Trade sources are expecting wire rod deals to gather momentum as the monsoon is gradually nearing its end, which usually leads to a pick-up in construction activity and demand for long steel products. However, prices and demand will depend on price movements of other semis and finished long steel commodities, with the conversion spread for wire rod producers expected to fluctuate by nearly 10% in the near term.
Leave a Reply