The conversion spread (margins) from sponge iron to billets rose by 4% in Raipur, but fell by 3% in Durgapur on m-o-m basis in Jul’21.
As per data maintained with SteelMint, the monthly average conversion from sponge P-DRI to billets in Raipur (in central India) stood at around INR 12,250/tonne (t) and in Durgapur (in eastern India) at INR 12,200/t during July.
On a daily basis, today, (4 Aug’21), the price gap was recorded at INR 12,650/t in Raipur and at INR 12,400/t in Durgapur.
Reasons behind volatility in conversion spread
If we compare the conversion spread prices in Raipur versus Durgapur, then we see a certain amount of volatility. However, overall, the conversion spread stands more or less firm with minor changes as there were production curbs in July, especially through the standalone as well as from hot charging plants, which largely sell billets in the spot market. This lent some price support to billets compared to sponge iron. Ultimately, the margins of billet makers slightly changed despite limited domestic demand due to the rainy season.
On an average, the production cut was about 30% in Jul’21 in central and eastern India.
During July, the monthly average prices of billets dropped by INR 700-900/t in Raipur and Durgapur, while, on the other hand, there was a sharp price correction recorded in sponge iron by INR 1,100/t in Raipur. However, in Durgapur, the same fell by INR 500/t.
Outlook
Sources expect that the margins of furnaces are likely to remain stagnant as supply-demand is balanced currently with the fall in billets production and seasonally low output of sponge iron. The price movement in both the products is likely to be in the same range, which may keep conversion gap limited.
Leave a Reply