Mills and auto original equipment manufacturers (OEMs) have begun negotiating the third quarter (Q3) contracts, SteelMint heard from reliable sources. The buzz is, prices are highly likely to drop for the current quarter.
“Yes, these are getting concluded,” a source said, but nothing conclusive has emerged yet.
The market grapevine has it that Q3 could see a substantial reduction of INR 4,000-5,000/t.
Reasons why Q3 contracts could be sealed at lower rates:
1. Domestic HRC-CRC prices range-bound: HRC-CRC prices have remained range-bound since October, 2022 with most buyers in destocking mode. Monthly average benchmark HRC prices in September-October hovered at INR 56,250/t and INR 56,800/t respectively. CRC prices in September were at INR 65,900/t – such levels were last seen in February 2021. October’s average prices were INR 65,600/t. Trade channels are not approaching mills readily in the hope that rebates/discounts may be offered.
2. Imports are cheaper than domestic HRCs: Moreover, Japanese imports are turning out to be cheaper than domestic material. Some India-bound Japanese HRCs were heard booked at $590/t CFR (INR 48,380/t) and another 40,000 tonnes at $550-580/t (INR 45,100-47,560/t) CFR. In comparison, domestic trade level HRCs are still at over INR 56,000/t minus 18% GST.
3. Inflation impacting domestic demand: Inflation is keeping domestic demand low and buyers are still not very forthcoming in terms of procurement as they await rebates.
4. Exports market almost plugged: Lukewarm global demand and the 15% export duty are almost snuffing out export demand. India’s steel exports plunged over 50% in April-September, 2022. And primary mills posted dismal Q2 results, indicating the export duty impact on their bottomline.
5. Raw material prices fall: A fall in key raw material prices like iron ore and coking coal in Q3 has been factored in by the mills, leading to subdued domestic prices of HRCs and CRCs.
Auto demand in full throttle
On the other hand, India’s auto production is at a peak since 2019. Total passenger and commercial vehicle production in January-October touched 4.1 million units. Around 5 mnt steel has been consumed by the auto sector in the first 10 months of 2022.
“Auto sales, especially of CVs, have spurred to a three-year high,” sources said. The auto sector consumes 10-12% of India’s steel production.
It may be recalled, in Q1 and Q2, the net increase mills enjoyed in longs was INR 4,950/t. In flats, they took a net decrease of INR 4,200/t in HRC and INR 5650/t in CRC over both quarters. Earlier, these contracts were settled on a half yearly basis but the shift to quarterly happened from April 2022.
Outlook
It seems, the mills are in a hurry to close the contracts unlike in the first two quarters when they dragged their feet. So, is the near-to-medium term outlook bearish, which is goading the manufacturers to seal at fairly acceptable levels before prices move further south.
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