India: Steel, raw material prices drop in Nov; mixed trend likely in Dec

• Domestic scrap, billets show sharpest fall
• Export duty removal has little impact but iron ore & pellets exports resume
• Mixed trend likely, going forward

Morning Brief: Steel and most input material prices dropped in November m-o-m. Domestic scrap and billet prices fell the most, dragged down by imports and subdued finished steel demand respectively.

SteelMint goes behind the scene:

Coal

• South African RB2: The bi-weekly index tracking the average portside ex-Gangavaram prices of the South African RB2 5500 NAR inched down 2% m-o-m in November, 2022 to INR 16,720/tonne (INR 17,040/t in October, 2022). The dip stemmed from the fact that there were not many offers for the material in the Indian market, due to its high prices. It was heard that DRI producers may target booking RB2 next year only if there is a substantial decline in prices. Sponge iron manufacturers, instead were heard making small-scale bookings in RB3 of which they have accumulated stocks till December-end. DRI producers had also been increasingly blending low-CV RB3 with Russian and Australian Carmichael coal in a 60:40 ratio for price viability. However, the focus is shifting back to South African coal, mainly RB3.
• Australian low-vol HCC coking coal: Average prices of the Australian low-vol HCC dipped 3% m-o-m in November to $300/t against $310/t in October amid a sluggish finished steel market and an oversupply scenario. In fact, globally, mills were reportedly reselling coking coal inventory surplus due to weak steel demand. Although prices have dropped off from their peak of $620/t in March, mills say coking coal is still ruling high. August saw prices hovering at $260/t levels but then they rose over September-October due to supply issues.
• SECL’s G9 (4750 GCV) auctions: South Eastern Coalfields (SECL) made a return to the auction fray in October, after a month’s gap. But prices have been seeing a steady decline. This has been primarily driven by the gradual improvement in supplies after SECL conducted back-to-back auctions in October-November. At the same time, there was no encouragement for buyers to raise their bids in a dull market which had seen limited demand from the power sector especially with winter approaching in most parts of the country. Thus, prices of the G9 (4750 GCV) dropped 8% to INR 6,549/t in November, 2022 as against 7,084/t in October, 2022.

Ferro alloys

• Silico manganese 60:40: Prices of the bi-weekly 60:14 grade silico manganese index emerging out of Raipur inched down 1% m-o-m to INR 75,500/t in November, 2022 against INR 75,900/t in October. Prices dropped marginally as domestic and export demand for manganese alloys weakened. Additionally, manganese ore prices have been declining for quite some time, which affected prices. Weak downstream demand also pressed down prices. At the same time, prices recouped toward the latter part of the month amid fluctuating finished steel sentiments, especially in the aftermath of the export tax withdrawal.

Scraps and metallics

All showed a sharp m-o-m downtrend.

• Pellet-based P-DRI: The pellet-based P-DRI, ex-Raipur, lost 7% to INR 29,480/t in November, 2022 (compared to INR 31,600/t in October, 2022). Sponge supply was adequate in the market but demand was sluggish amid a poor performance by semi-finished and increased bulk scrap imports at competitive pricing.
• Steel grade pig iron: Pig iron prices also dropped 7% m-o-m in November to INR 44,140/t (INR 44,140/t in October). The 15% export duty had been applicable till 18 November, and led to inventory build-up in the domestic market, putting pressure on pig iron prices. Finished steel sales in the secondary sector was sluggish. In fact, pig iron prices have been declining since August with buyers moving to the sidelines, waiting for further falls.
• Domestic scrap: The domestic scrap (ex-Mumbai) index trended down sharply by 10% to INR 35,090/t ($431/t) in November, 2022 against INR 38,800/t in October. In fact, prices have been dropping steadily since August and for multiple reasons. These include pile-up of finished inventory with mills post-export duty imposition, and the resultant lower capacity utilization; fall in semis prices amid drop in finished demand; overall lower steel downstream demand; and finally imported bulk scrap prices converging with ex-Mumbai rates.

Steel

This segment, comprising billets and finished products, saw prices moving down across the spectrum.

• Billets: The ex-Raipur billet index lost a sharp 10% m-o-m at INR 42,880/t in November, 2022 (INR 47,580/t in October) due to low buying interest. Participants remained cautious, waiting for stability in prices before taking positions. In the course of the month, the index fell to levels seen before the export duty imposition. Factors like lower bids, weak spot trading, sufficient inventory with mills all colluded to drag down billets prices.
• Rebar: The ex-Mumbai BF-grade dipped a marginal 1% to INR 56,040/t (INR 56,420/t) in October. The IF grade rose lost 5% to INR 52,730/t (INR 55,620/t) while wire rods (ex-Durgapur), slid 7% to INR 47,170/t (INR 50,830/t) last month.

BF-grade material fell amid low global demand and need-based buying from the project segment. In fact, projects preferred BF-grade whose prices became highly competitive against IF materials. The market for IF-grade witnessed continuous falls as buyers remained in wait-and-watch mode amid sluggish demand.

• HRC: Ex-Mumbai trade-level HRC prices edged down 1% in November to INR 56,000/t from INR 56,770/t in October. The government’s removal of the 15% export duty from 19 November had little-to-no effect on market prices. Sellers in raised offers to test acceptance but pulled them back on lukewarm response. Imported HRCs also kept prices down.

Iron ore

This raw material, in terms of fines, lumps and pellets, showed a mostly flat trend.

• Fines, lumps and pellets: Fe62% fines from Odisha remained flat at INR 3,550/t (INR 3,560/t) in November while the Fe63% lumps (Odisha) remained unchanged at INR 6,990/t (INR 6,900/t) m-o-m. Fe63% pellets (DAP Raipur) lost 1% m-o-m to INR 8,040/t (INR 8,150/t).

As per sources, the high-grade ore’s availabilty is still an issue in Odisha which allowed prices to move in a narrow range despite the lack of demand for finished material. Also, low-grade exports resumed from Odisha towards month-end which supported iron ore prices in the latter half of November, post-duty withdrawal.

The monthly average domestic pellet index, PELLEX, dropped 1% m-o-m in November to INR 8,040/t (INR 8,150/t) due to the fall in prices of competing raw materials like sponge and billets amid tepid demand for finished products and lack of exports. However, later, when the government revoked the export duty on pellets, prices increased by 1,100-1,200/t.

Short-term outlook

Prices are likely to show a mixed trend in the short to medium term.

The export duty removal on steel, iron ore and pellets may help in resumption of overseas sales. This will pull up domestic prices, especially of pellets, and sponge iron.

Domestic scrap may still be under pressure from imported bulk scrap cargoes.

Finished prices may have bottomed out. Even if they do not fall from here, they are not likely to drop either, especially from secondary mills as their input costs may show an uptrend as pellets exports resume.