- Primary mills cut rebar offers to project segment by INR 6,000-7,000/t, m-o-m
- Correction influenced by export duty, subdued domestic demand, low global prices
- Further corrections may happen in coming months, although sharp fall unlikely
Morning Brief: The rebar prices for the project segment have corrected by INR 6,000-7,000/t ($77-89/t) m-o-m by the tier-1 mills (largely BF route), this is about 10% down from the last month’s settled price. Current prices are hovering at around INR 60,000-61,000/t ($770-783/t), delivered-at-site, SteelMint learned from market sources.
The infrastructure and construction segment (contributes over 50% of India’s steel consumption) the chief buyers of rebar, are proactively trying to complete as much of the work as possible ahead of the monsoon’s onset, especially since procurement was delayed with rebar prices at a high in March-April. So, currently, significant pre-monsoon procurement is taking place, it seems.
It may be recalled that in May, the mill-level prices had hovered around INR 66,000-67,000/t ($847-861/t), which indicates a shave-off of INR 6,000-7,000/t in June m-o-m. The project segment settles prices monthly. Peak was seen at INR 76,000-78,000/t just after the Russia-Ukraine conflict in Mar/Apr.
Why did prices correct downward m-o-m?
Export duty impact on raw material prices: Although longs comprise only around 20% of India’s total steel exports, and rebar were a mere 5% in 2021, the export duty on iron ore and pellets, announced on 21 May, pulled down prices of these raw materials and, in turn, the secondary sector prices too.
SteelMint’s Odisha iron ore fines index (0-10mm, Fe-62%) dropped to INR 3,600/t ($46/t) as on 4 June 2022 from INR 6,050/t ($78/t) on 23 May 2022. Furthermore, on 7 June, State-owned NMDC reduced base prices of iron ore by INR 1,160-1,200/t ($15/t) for both fines and lumps from its Donimalai mines auctions.
Weak demand for finished steel: Iron ore and pellet prices also dropped because of weak demand for semis and finished steel. The induction furnaces witnessed weak buying enquiries amid inventory pile-up. Since the secondary sector comprises 60% of the longs market, its prices also influence primary mills.
Global prices correct by $70-80/t m-o-m: Although billets are out of the export tax ambit, no major deals were reported over the last few weeks as global prices are down and so is buying interest. In fact, current billet prices have been trimmed by $70-80/t FOB to $610-615/t FOB from $680-690/t FOB last month. Russia’s comeback with lowered prices spoilt Indian mills’ export offers.
Sluggish demand for BF-route rebar: With the gap between BF-route (INR 61,250/t) and IF-route (INR 53,900/t) currently at around INR 7,350/t levels ($95/t), many private sector construction end-users are migrating to the latter, putting the former under pressure. The gap is generally maintained at INR 3,000-4,000/t ($38-51/t). Prices mentioned are on an ex-yard Mumbai basis and excludes GST @ 18%.
Outlook
It seems rebar prices may not fall steeply from current levels in June essentially because of the impact of the higher cost of raw materials. Mills are currently working with raw material bought at steeper rates, 2-3 months back. The cost push eased in the last 1-2 months as raw material prices corrected and its impact will be felt in the next quarter.
There is thus a possibility of BF-grade rebar prices correcting downward further in July-August, for two reasons: First, the mills will reap the benefit of the lower raw material cost push. Secondly, demand will be lesser as the rains would have set in by then, impeding construction activity by at least 30%. The mills would have room to absorb the price correction owing to the fall in iron ore and coke prices which took place in May-June and are to be realised in the July-September quarter
Whatever corrections happen, will also get reflected in the trade segment too which acts on cue from the price movements of mills.
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