India: Rebar Conversion Spread Down Up to 16% in May

Declining domestic offers amid dull demand and higher production cost has resulted in thinning down of rebar conversion spread.

Conversion spread (margins) is key factor to be considered in rebar if it belongs to stand alone or hot charging mill and does includes from procurement of raw materials (Billet) to sell finish steel.

The factors behind sharp fall in conversion by INR 150-600/MT (3-16%), are dull sentiments and very limited buying observed across regions from trade participants.

The average conversion spread (from Billet to Rebar) in major markets stood at INR 3,828/MT ex-Raipur, INR 5,076/MT ex-Durgapur, INR 3,154/MT ex-Mumbai & INR 5,133/MT ex-Chennai. These conversions fell by INR 150-600/MT in comparison with Apr’19.

During June’19 Eid festival has been celebrated across India which is led to disturbed production levels & demand as well due to inappropriate work force which has increased production cost amid lack of utilization rate through large scale as well as medium scale mills.

However the major affected proportionate registered through medium and small scale producers which is not up to the mark amid lack of latest technology as most of the work still exist manually in standalone mills.

Further, one of the key factors is lack of buying interest amid dull demand in domestic market due to elections as average rebar price range has been slump more than INR 1,500/MT in specified regions and most of the major location average prices reduced by INR 700-1,000/MT during May’19.

Liquidity issue can’t be ignored where most of the payment cycles are getting delayed by twice and considerable backlog orders yet to lift from traders end along with negative ratings of non-banking sector is still a major concern to deal with where industrialists are getting affected too with bank limits.

Monthly Average Conversion Spread Billet to Rebar (12 mm)

Source – SteelMint Research