India: Induction furnace rebar producers’ margins drop even as demand recovers in late June

The conversion spread (margin) from induction furnace (IF)-route steel billets to rebar fell by 12% in Raipur, central India, while margins decreased in Durgapur, eastern India, by over 11% , m-o-m, in June 2022, SteelMint assessment shows.

On a monthly basis, the average conversion spread from 100mm billets to 12-25mm rebar was recorded at around INR 4,400/t in Raipur and INR 4,250/t in Durgapur.

The Raipur and Durgapur markets are major supply centres from where rebars are dispatched to various regions of the country. The total daily rebar production in these two markets stands at around 30,000 t.

As per markets participants, Madhya Pradesh and Maharashtra are the key supply destinations for producers in Raipur, while Uttar Pradesh, Bihar and Himachal Pradesh are the major markets for Durgapur.

Demand for rebar remained active in the second half of June in Raipur and Durgapur as most of the re-rollers had sufficient future bookings despite the decline in conversion spread. However, short supply of billets and dispatch issues were witnessed in both markets due to constrained supply from the few major furnaces.

Factors supporting trade

Price correction: The decline in raw material (billets) monthly average prices by around 9% in both locations exerted pressure on rebar prices, which decreased by a similar range, thereby affecting margins. However, rebar demand rebounded on lower offers along with pre-monsoon stocking by retailers.

Big gap between IF, BF rebar prices: The difference between induction and blast furnace rebar prices was assessed approximately at INR 9,000/t in June. Cheaper offers by the IF mills boosted demand for rebar. The price gap is currently at INR 4,000-5,000/t depending upon location.

Outlook: Rebar prices may slow down as the monsoon has already approached in major states which could impact steel demand. Finished steel prices are mostly driven by input costs for industries viz. raw materials. Trade volumes may edge lower m-o-m, even if marginally. This may affect margins; however, major changes are unlikely as the current margin sits at an ideal range.