The conversion spread (margins) from sponge iron to billets dipped by 1% m-o-m in Raipur and Durgapur in Jan’22. According to SteelMint’s assessment, these margins were at around INR 12,900/t in Raipur and INR 13,600/t in Durgapur during Jan’22.
It may be recalled, the conversion spread (margins) from sponge iron to billets had increased by 3-4% in Raipur and Durgapur m-o-m in Dec’21.
On a daily basis, today, (1 Feb’22), the price gap was recorded at INR 13,500/t in Raipur and at INR 13,400/t in Durgapur.
Analysis
- Constant surge in raw material costs led to a huge gap between the cost of production and selling prices of sponge iron and billets.
- The monthly average prices of billets gained sharply by INR 3,700-3,900/t in both the locations. Moreover, there was a sharp increase in the monthly average prices of sponge iron by INR 3,800/t in Raipur and of INR 4,000/t in Durgapur, in the past one month.
- Billets consumption was also stagnant with moderate demand seen for finished steel in the domestic market.
Reasons behind drop in margins
- SteelMint, while speaking to standalone furnaces in eastern India, learned that “they have cut down production by up to 20% due to high production costs and a rise in Covid-19 cases,” said a Durgapur-based manufacturer.
- Due to increased iron ore and pellet prices, the margins have seen a fall as manufacturers are incurring higher input costs.
- Similarly, the production cuts from furnaces were also reported in Raigarh in central India due to lower margins.
What may happen?
Sources are assuming, due to higher raw material prices — iron ore, pellets and coal, sponge makers may push to keep prices strong to maintain their margins.
The conversion spread of billet makers will likely remain slightly changed in February as offtake of finished steel products is expected to remain subdued.
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