- HRC-CRC delta at INR 4,300/t in Feb
- Chip shortage keeps spread in narrow range since Oct’21
- Likely easing in chips crisis to boost CRC demand
- Exports demand to increase, give further boost to CRC demand, prices
- Delta may broaden in coming months
Morning Brief: The price spread between benchmark hot rolled and cold rolled coil prices were seen at INR 4,300/t ($57/t) in Feb’22.
Data maintained with SteelMint indicates the delta had moved in a narrow range since the third quarter, last fiscal. From INR 5,000/t ($66/t) in Oct-Nov’21, the gap narrowed further to INR 4,800/t ($63t) in Dec’21. Then, dropped to a record two-and-a-half year low of INR 3,200/t ($42/t) in Jan’22 but edged up again in February.
However, prior to Oct’21, for nine months since Jan’21, the spread had hovered in a high range of over INR 8,000/t ($106/t) to a record above INR 16,000/t ($211/t).
Reasons for the narrow range
Swinging automotive fortunes: The key reason for the changing delta in the last one year has been fluctuating automotive demand (which enjoys around 10% share among downstream sectors).
When India returned from Covid-related lockdowns in 2020, the pent-up demand for automobiles increased sharply, putting customers in a waiting period of 4-5 months.
CRC being a key input material, was obviously in high demand, leading to a supply crunch, allowing mills to raise prices, especially from Jan’21 onwards, which peaked in June’21 to INR 83,500/t ($1,096/t).
However, the semi-conductor shortage reared its head from the latter half of last calendar, with a pronounced impact on the automotive sector. Auto production decelerated in India. In fact, Society of Indian Automobile Manufacturers (SIAM) data reveals that the total production of passenger vehicles, three-wheelers, two-wheelers and quadricycles in Nov-Dec’21 dropped to around 16 lakh units against a more robust above 21-22 lakh units in Sept-Oct’21.
In a cascading impact, demand for CRCs dropped, easing its prices too. In fact, monthly average trade-level benchmark CRC prices, ex-Mumbai, in Dec’21 and Jan’22 had taken a sharp knock down to INR 70,200/t ($927/t) and INR 67,200/t ($885/t) respectively. It was mainly the shave-off in CRC prices that narrowed the delta.
However, mills started increasing their cold rolled production because of the simmering demand for automobiles. Covid has encouraged consumers to prefer personal mobility over shared transport.
HRC prices, meanwhile, remained somewhat stable since Apr-May last year.
Export demand for CRCs: That apart, international steel prices had also started rising last year, leading to higher import inquiries for Indian steel from Europe. Exports from India mainly comprised CRCs, sharply pushing up prices of the same globally and domestically. For instance, Indian trade level prices had hit record high levels of INR 80,000-83,500/t ($1,056-1,103/t) over May-Jun’21. However, from Q3, the export demand of CRC and coated products dipped, on the back of the chip shortage, dragging down CRC prices in Dec’21 and Jan’22 respectively. The domestic market saw excess availability.
The country’s top automakers, such as Maruti Suzuki India, Mahindra & Mahindra, Toyota Kirloskar Motor and Honda saw a deceleration in wholesales in January as dispatches from factories to dealers dropped due to chip shortfall.
Although the shortage has eased a bit, availability is still limited.
Long-term chip self-sufficiency
Meanwhile, India is in talks with Taiwan for setting up a $7.5 billion semi-conductor unit to ease the chip shortage, along with tariff reductions on components for producing semiconductors.
Indian conglomerate Vedanta has also earmarked $15 billion for a foray into the electronic chip and display manufacturing space, and plans to scale up the investment to as much as $20 billion, a senior company official said. “We are looking at a $25-billion market only in semiconductors which is going to grow for mobile phones, consumer electronics and going forward even for automotive,” the official added.
However, these efforts will not bear fruit in the immediate future.
Outlook
The chip shortage will likely ease further in the coming days and CRC demand may again accelerate along with prices, since January’s total vehicle production has already improved to 18.61 lakh units.
Indian flat products, including CRCs exports, are poised to increase as the Russia-Ukraine war disrupts finished steel supplies to Europe. Both export and domestic offers are slated to increase in the short term which may nudge the delta higher.
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