India’s induction furnace (IF)-route billets to rebar margins, also called the conversion spread, breached 14 months lows specifically in the Chennai (in southern India) market by sharply dropping 26% in January as per data maintained by SteelMint.
Bars and rods production via the induction route holds the maximum 60-65% share from 2017 to 2021, as per SteelMint statistics.
The monthly spread narrowed down by up to 26% in Chennai, followed by 16% in Raipur, based in central India.
However, nominal changes were observed in the western and eastern regions. For instance, January’s monthly average conversion spread was recorded at INR 3,559/t in Chennai — a fall of 26%, and to INR 2,892/ in Raipur — down by 16%. But it dipped a marginal 1% to INR 5,028/t in Jalna and remained stable at INR 3,398/t in Durgapur m-o-m.
Notably, the above-mentioned markets are notified as major supplying regions like central, western and eastern. Whereas, the Chennai market, based in southern India, seems to be balanced in terms of supply and demand.
In Jan’22, rebar steel supply and demand in the spot market improved across regions and most manufacturers observed adequate booking orders with them from retail and project segments both. However, from mid-January, the retail segment witnessed weak trade inquiries in the spot market despite strengthening prices.
Monthly average rebar prices increased by around 7% in Raipur and Jalna to INR 48,336/t and INR 52,024/t respectively. Parallelly, a hike by 8% to INR 49,492/t was seen in Durgapur while prices in Chennai moved up by 5% to INR 50,089/t last month.
Why was conversion spread volatile?
Limited price acceptance: In Jan’22, raw material prices increased consistently which pushed rebar manufacturers to increase prices. A sharp and consistent rise in the prices of raw materials and finished steel weakened buying interest among traders and retailers in specific regions.
Previous bookings: A few markets observed limited buying inquiries during mid-January and manufacturers kept their offers high due to soaring semi-finished steel prices and some previous bookings as well, although this varied region to region. However, buying inquiries were better in western and eastern regions with regular movements seen along with previous bookings.
Raised rebar offers: Additionally, Indian primary mills raised rebar offers on the back of the coal price surge, which in turn supported price hike by secondary mills.
Outlook: Rebar prices may be further influenced by the raw material movement. Manufacturers said additional price increases may create selling pressure which could impact supply. Further, they said requisite correction should happen which would sustain the supply chain.
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