India: Mills under price pressure on inventory pile up, bearish export trend

The rebar spread between primary and secondary mills is narrowing further. SteelMint went behind the scenes to find the reasons for the trend.

Inventory pile-up

Indian steel mills are seeing an inventory pile-up. Against the usual inventory level of 12-15 days, these are getting extended to around 20-25 days at present. A leading primary mill, which generally sells around 2 lakh tonnes per month across domestic and overseas markets, is seeing sales reducing to around 50,000 tonnes (t) in Jun ’21. This is an indicator that mills are facing hurdles in selling in a dull domestic market while export prospects have turned bleak because of lack of vessel availability and high freights.

Prices under pressure

Consequently, the realisations for primary players have fallen below INR 50,000/t ex-mill basis compared to the INR 51,000/t offered, say, two weeks back. Sources inform that some mills are even willing to book at even INR 48,000-49,000/t ex-mill. Delivered price would be an addition of around INR 2,000/t as freight charges.

Secondary mills’ prices are hovering around not less than INR 46,000-47,000/t ex-mill, narrowing the gap between primary and secondary rebar prices. Indeed, the gap between primary and secondary rebar prices is not very wide at present, at around INR 2,000-3,000/t from the earlier INR 4,000-5,000/t.

SteelMint has also learnt that, weighed down by lack of demand in finished steel, several mills are opting to offload material at the semis stage (billets and pig iron), instead of rolling these into rebar. A leading southern India-based mill recently floated a tender for auction of around 25,000 tonnes of pig iron against its usual 5,000-6,000 t or so. Unable to shut down their blast furnaces, mills are producing hot metal, converting it into pig iron and attempting to sell the same, a source confided.

Exports scenario bearish

The key reason behind the inventory pile-up and pressure on prices is lack of exports. Mills have export allocations but muted buying interest because of high freights and vessel unavailability. Notably, large Indian mills have been exporting around 30% of their production for the past few months.

SteelMint overheard that exporters are re-negotiating on billet bookings which were made around a month back at higher levels on account of unavailability of vessels and higher freight. Several others are facing a similar predicament and exporters are thus unwilling to dispatch cargoes from India currently.

Outlook

The export prices demanded are, however, viable, sources indicate. A mill was looking to sell one parcel of billets at say around $600/t FoB, which many feel is a fair offer and should get sold once the tight vessels situation eases.

But, there is further room for rebar price corrections in the domestic market, because of inventory pile-up. Exports are not likely to jump-start immediately. Mills do not want to sit on inventories for a long time and block their finances.

“Prices will likely correct for both primary and secondary players in longs, because the latter’s prices cannot climb higher than the former’s,” said a source.