- Trade-level prices feel imports heat
- Longs correct, plagued by subdued exports
- Prices expected to stay firm or rise
Morning Brief: The India Steel Composite Index, after remaining more or less stable for three weeks, went back to negative territory yet again for the week ending 16 December. It dropped 0.7% to close at 145.10 points (146.10 points in the previous week). The flats index dropped 0.73% to 141.60 (142.70) points. Longs dipped 0.64% to 148.50 (149.40) points w-o-w.
Why did the index revert to negative zone?
1. Trade-level flats face imports pressure: Mills did not reduce their flat steel price tags while global prices did see an uptick. Exports resumed. So, fundamentally, there was no reason for the index to dip. Yet, it did. A little softness in the trade segment is what kept the index slightly depressed, SteelMint understands. Prices in the trade segment remained a little under the weather because of imports. Some have already landed, portions are in transit while the remaining cargo is slated to arrive next month. Import prices are still at a discount to domestic, which has unnerved trade channels.
2. Longs prices adjust: Flats prices had dropped lower than longs – an unusual trend. And, possibly, longs prices could be adjusting, a source observed.
Secondly, the price spread between the larger and smaller mills, which should ideally be at say INR 4,000-5,000/tonne, is currently at INR 2,000-3,000/t. Therefore, smaller mills are adjusting their prices too with IF-route dipping slightly.
3. Billets exports still subdued: Exports have resumed but mainly in flats. Globally, demand for billets and other longs is still depressed. Most of the Southeast Asian countries, which habitually imported billets, have been rather inactive for some time. India’s exports of billets, in 2021 were at almost 5 million tonnes (mnt). However, these are expected to drop significantly to 1.50 mnt in 2022, as per SteelMint’s estimates. Around 80% of these are exported by the BF mills which are now saddled with excess inventory. Thus, prices are under pressure since the volumes meant for exports will not be fully consumed in the domestic market. As it is, billets, rebar and other long products are seeing moderate and fluctuating demand in the secondary sector.
Index dip w-o-w negligible
However, the index dip was negligible, because of the green shoot in the form of exports revival especially from Europe. Moreover, prices have started heading north – in China, Europe, Japan, Taiwan.
Outlook
Positive signals are emerging in the steel space globally. Export volumes are looking up and the momentum is expected to sustain in the January-March quarter.
Prices, which have started rising, are also expected to remain firm or rise further on the back of the demand revival, especially in China and Europe.
But, having said that, Indian mills may remain slightly under pressure till imports recede. Mills can take comfort from the fact that no fresh import bookings have been made. This is because of the rise in global steel prices. Japanese and Vietnamese mills, from whom the imports into India were originating, have also raised their prices. Vietnamese export allocations have decreased while the appreciated yen is not supporting Japanese exports. Both these trends are likely to persist for the time being. The imports wave is expected to sustain for another few weeks before receding.
Indian steel prices may see an uptick from here, supported by global prices and decent project segment demand. Meanwhile, the project segment has made considerable bookings in early December, as rebar prices from primary mills got rolled over. These consignments are slated for January delivery.
The India Steel Composite Index
The India Steel Composite Index is assessed on a weekly basis: every Friday at 18:30 IST, as per the weighted average prices based on manufacturing capacity and production.
SteelMint considers the Composite Index with the base year being 3 January 2020 (financial year 2019-2020) and the base value as 100. The Composite Index does not give the absolute price but a trend of the market. The Indian steel industry is broadly classified into the BF-BOF and the electric/induction furnace routes. Keeping this broad classification in view, SteelMint proposes to release the Composite Index by considering both production routes by manufacturing capacity and the production weighted method to compute the index for India. For details click to view the methodology document.
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