The monthly conversion spread (margins) from steel billets to induction furnace-wire rods in the Raipur market dropped by 11% while that in the Durgapur market inched up by 3% m-o-m in Dec’21, as per SteelMint’s assessment.
The average conversion spread was recorded at around INR 3,725/tonne (t) in Raipur and around INR 3,515/t in Durgapur last month.
It may be noted that Raipur (central region) and Durgapur (eastern region) are the major supplying markets of IF-route wire rods in India. As per data maintained with SteelMint, daily production in Raipur stands at around 10,000-11,000 t and in Durgapur at 6,000-7,000 t.
Factors affecting conversion spread-
Lack of demand: Market participants saw subdued trade enquiries and transactions in the domestic market because end-users of wire rods (producers of galvanised wire, binding wire, barbed wire and HB wire) had curtailed production by approx 40-50%. This affected demand, forcing suppliers to liquidate the material on lower prices.
Furthermore, amidst sluggish domestic demand, mills had started focusing on exports. Nepal stood as a major importer of Indian wire rods (of both induction furnace- and blast furnace-routes) at 21,345 t, increasing by 32.6% m-o-m in Dec’21 as against 16,098 t in Nov’21.
Volatile raw material prices: High volatility in raw material prices affected bulk transactions in the spot market as buyers were cautious in procuring at higher prices which increased selling pressure on mills. Suppliers started offering attractive trade discounts ranging INR 500-2,500/t, particularly in the central region depending upon the movement of raw material prices and market requirement.
Outlook: Market sources are expecting wire rod prices to remain volatile and less likely to see a major drop as there is less scope of a further fall in its raw material prices owing to healthy export orders. The conversion spread from billets to wire rod is expected to remain range-bound (+/- 5-10%) in the near term.
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