Conversion spread (margins) of medium & small scale mills narrowed by 16% m-o-m in Oct’20 in the key markets including Raipur (central India), as per data maintained by SteelMint. In other regions like western, southern and eastern India, spread fell by 5- 10% on m-o-m basis.
Factors behind decline in margins:-
Limited supplies to outside state based units – Material movement from from major producing regions (like central & western India) to other markets remained slow owing to higher landed cost.
For instance, monthly average rebar (size 10-25 mm) price in raipur stood at INR 33,000/t in Oct’20. The landed price in Chennai stood around INR 36,000/t which is about INR 1,000/t costlier against local rebar prices which was seen at INR 35,200/t. Similar reasons were cited for other key markets as well.
Inventory levels – Stock levels with the medium /small scale mills in key supplying regions are assessed slightly higher levels in comparison to average stock. Future bookings remained limited, in line with market scenario.
What may happen?
Sources believe that with falling margins, standalone rolling mills may cut their production. The current capacity utilisation is heard around 50% particularly in the central India and 70-75% in other regions, as per sources.
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