The conversion spread from sponge iron to billets dropped 12% m-o-m in Raipur and Durgapur in June 2022 continuing the decline seen in May when the m-o-m conversion spread fell 11% in Raipur and 8% in Durgapur.
The monthly average conversion spread from sponge P-DRI (pellet-based DRI) to billets in Raipur stood at around INR 14,965/t and in Durgapur at INR 15,608/t last month, as per data maintained with SteelMint.
On 2 July the conversion was recorded at INR 16,450/t in Raipur and INR 17,000/t in Durgapur.
Factors behind the drop in margins
Export duty impact
The post-export duty impact was one of the key factors behind the drop in margins. As soon as the duty was imposed on several steel products, the market started to witness sluggish trends, leading to the decline in finished steel and semis prices.
Dull finished steel demand
Market participants were under a lot of pressure during June, with steel prices falling sharply. The market was finding it difficult to find stability along with subdued finished steel demand.
This, in turn, led to a sharp fall in billet prices. However, a significant drop in sponge iron prices was seen due to volatility in coal prices which had witnessed a correction in the first half of June. However, in the second half of the month, coal prices shot up again.
Price Overview
- The monthly average prices of billets fell sharply by INR 4,400-4,500/t in Durgapur and Raipur during June.
- On the other hand, the monthly average prices of sponge iron dropped INR 2,300-2,400/t in both locations.
Outlook
The margins of billet producers are unlikely to increase in July amidst the approaching monsoon which would lead to a slowdown in construction activities. Along with the ongoing volatility in coal prices and subdued finished steel demand, there might be slight fluctuations in the conversion spread in July.
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