Despite hike in billet & sponge prices, the conversion spread (margin) remained low from P-DRI to Billet in Raipur, Central region where the manufacturers melts 80-85% sponge to produce billet.
Currently, the conversion spread (margins) in Raipur are evaluated at INR 9,000-9,200/MT from P-DRI ( FeM 80) to billet; down approximately INR 2,000/MT as the same during Jun-Jul’17 was reported near INR 11,000/MT.
However, in other key markets the conversion remain at firm level like Durgapur at around INR 10,000/MT. The sources here mentioned, billet demand is strong following improved exports & supported domestic demand which in turn there is a proportional price rise in both billet & sponge resulted stability in margins.
According to the manufacturers on an average they required conversion spread approximately at INR 10,000-10,500/MT. They further added, increasing prices of other key melt products like pig iron, scrap & Silicon Manganese are other major burdens for them as the prices of the respected products are also on peak.
In outlook, it seems that if the conversion spread remain on downtrend the IF/EAF owners may be reluctant to cut productions in line with balance supply demand and margins as well.
Raipur based integrated plants offered Sponge & Billet are – C-DRI at INR 19,000/MT, P-DRI at INR 18,000/MT & for Billet size 100*100 & 125*125 mm at INR 27,000-27,200/MT; ex-works & excluding of GST.
Note: The conversion spread represents the speculative cost of production and margins. If the conversion spread is above industry average then the price of the products is higher than the input cost (including miscellaneous, raw material cost and power cost) and the spread is profitable. If the spread is lower than industry average then the products are priced at less than the input cost and are not profitable.
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