- Steel Composite index down for three weeks in a row
- Inflationary pressures keep buyers away
- Lower raw material costs, EU output cuts may bring cheer in Q3
Morning Brief: The lack of demand seen for the last fortnight extended into the current week. The India Steel Composite Index dipped further for the week ended 21 October by 0.6% to end at 151.90 points against the previous close of 152.90 points.
Longs edged down another 0.75% to 153.20 points (154.40 points) while flats lost another 0.40 points to end at 150.70 points (151.30 points).
This is the third week in a row that the steel index has dropped and so have the longs and flats indices.
Factors aiding the sustained slide
Festive mood sets in: The week ended 21 October just preceded India’s biggest festive season of Diwali. Most market participants moved out as the holiday mood set in. Trading activity fell sharply leading to the immediate slackness.
Buyers resist price hikes amid inflation: However, the market had gone quiet since the beginning of October after mills announced a second hike in prices for early October sales. In September, it may be recalled, mills had raised benchmark HRC and CRC prices by INR 500/tonne. In early October, there was an average INR 1,000/t hike for both.
However, end-users and trade partners shied away from the second price hike amid inflationary pressures. Demand currently is down by almost 50% compared to the same period last year.
Other challenges: There are certain challenges which are bothering-end users for some time now even though demand from the infra and house-building sector as well as was other sectors was reasonably good. One is inflation with the onset of the Russia-Ukraine war, which had set rolling the oil inflation.
According to a CREDAI survey, building raw material prices (including steel, cement, fixtures etc) have seen a 35-40% increase compared to the pre-pandemic period.
A snapshot of electricity prices traded on the Indian Energy Exchange (IEX) day-ahead market platform reveals that Q2 prices are up 30% q-o-q at INR 5.40/t and 31% y-o-y.
India better placed than other countries?
However, even if inflation and the global energy crisis are a concern, India and the Middle East are performing better and many say that domestic demand is strong and stable. For instance, construction, which consumes more than 60% of steel, has not done badly so far in India. In Q2FY23, the northern region witnessed growth in the infra space with the execution of major projects. So did major parts of eastern India. The central and southern regions were driven by individual house builders while the latter did see some major project executions too. The western zone, however, reported a flat graph because of heavy rains in Maharashtra and Gujarat. JSW Steel, in a recent concall, said, in Q2, domestic infrastructure sector demand was at 19 million tonnes (mnt) and auto 6 mnt with “supply and demand well-balanced.”
It further said that domestic prices are also better placed vis-a-vis international prices but that downstream imports are up.
Outlook
End-users and stockists are expected to return to the market post-Diwali. Further upside in Q3 is expected in the form of lower raw material costs. Coking coal may drop by around $80/t as per a report. The production cuts expected in China for winter have already signalled a decline in iron ore prices.
Moreover, the EU production cuts will also throw up opportunities for Indian mills. Annualised output cuts are at 20 mnt and the situation is not likely to improve soon.
The India Steel Composite Index
The India Steel Composite Index is assessed on a weekly basis: every Friday at 18:30 IST, as per the weighted average prices based on manufacturing capacity and production.
SteelMint considers the Composite Index with the base year being 3 January 2020 (financial year 2019-2020) and the base value as 100. The Composite Index does not give the absolute price but a trend of the market. The Indian steel industry is broadly classified into the BF-BOF and the electric/induction furnace routes. Keeping this broad classification in view, SteelMint proposes to release the Composite Index by considering both production routes by manufacturing capacity and the production weighted method to compute the index for India. For details click to view the methodology document.
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