- Steel mills struggle with low demand, inventory pile-up
- Semis’ prices drop as finished steel sales decline
- Imported and domestic scrap prices at similar levels
- Global demand for ferrous scrap tepid
Morning Brief: Indian domestic ferrous scrap prices have fallen 24% and further southward movements are expected in the near term.
SteelMint’s domestic steel scrap (end-cutting) index has fallen by INR 6,500-7,000/t m-o-m and the downtrend may continue in near term, as per market sources.
On 18 November, 2022, the index fell by INR 1,100/tonne (t) to INR 36,800/t DAP Mandi Gobindgarh. This fall indicated that domestic melting scrap hit its lowest price level since April this year.
“There is an effort by scrap sellers to stabilise the market. Prices are declining but the fall is limited. They may go down further by INR 500-700/t”, another trader source pointed out.
Reasons for the downtrend in scrap prices
What mills say
Pile-up of finished inventory: Both the primary and secondary steel producers are facing challenging times. Higher availability of finished steel in the domestic market post-imposition of the 15% export duty led to over-stocking in the trade channel and with end-users, which is leading to continued moderation in steel prices for larger mills.
Both primary and secondary mills have run up inventory piles as demand has taken a hit amid inflationary pressures. Stocks are increasing at a worrying rate and having a major effect on prices, sales and production levels.
Lower capacity utilization: Mills are not producing at full capacity because of low demand from end-users and shortage in raw materials. Demand is low which, in turn, is leading to high inventory levels.
Semis prices fall: Another key reason is that prices of semi-finished products like ingots and billets have also fallen around 26% since April 2022 on the back of lack of demand for finished steel. “Inventories of semis are increasing at mills as poor sales have resulted in most furnaces operating 12 hours a day,” a Mandi mill source said.
Prices have corrected sharply in recent days. Mandi ingots prices, on 18 November, opened at INR 43,300/t, but later slipped to INR 42,200/t at the time of SteelMint’s price normalisation.
What trade channels say
Lower downstream demand: Retailers and end-users are demanding less steel, which means that the new infrastructure projects are not running at full force.
A revival in economic activities from end-user industries such as construction, infrastructure, automobile, real estate and consumer durables will support steel consumption and boost India’s manufacturing. Lack of economic activities is also causing a liquidity crunch for small businesses.
From scrap suppliers’ perspective
Did holding on to inventory before Diwali back fire? Some large mills were of the opinion that domestic scrap sellers held on to material ahead of the Indian festival of Diwali, in anticipation that the domestic steel market would see a boom. However, the opposite happened, and those sellers who had stocked up on scrap were saddled with inventory post-Diwali. They were unable to release the same in the market as this material was procured before Diwali at higher prices. Now, with prices having dropped, selling the stocked-up material at lower prices will not be viable. They have no choice but to wait and watch if the market improves from hereon.
Imported, domestic scrap prices converge: Imported scrap suppliers too are facing a dilemma. Prices of imported ferrous scrap coming into an Indian port are on parity with the current domestic scrap prices.
For example, imported melting scrap prices at Nhava Sheva Port were at around $378-380/t (including freight, it is approximately INR 34,100/t), while local scrap – HMS 80:20 – prices in Mumbai were assessed at INR 33,300/t.
Global markets a damp squib: In global markets, Turkish mills have lower appetite for scrap due to lesser inhouse and European demand. Bangladesh is facing challenges of payments due to LC opening issues. Pakistan is struggling with low demand, power outages and a sliding currency.
So effectively India is the only big buyer in the current market. Due to the correction in India’s domestic rates, overseas prices too have come down significantly. For instance, the benchmark Turkish imported HMS prices have corrected by $40/t from their June 2022 levels.
Outlook
Scrap sellers may face challenges in the near term.
Taking a long-term view, domestic consumption of steel will continue to grow, backed by improved economic activity and the government’s continued investment in infrastructure and construction. In the long term, scrap demand will also go up.
Secondary mills are unable to source domestic scrap in adequate quantities, because industries that generate scrap on a daily basis have reduced production. For instance, auto component manufacturers. Scarce supply may lead to price stabilisation in the long term.
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