- SteelMint’s weekly steel price composite index rises w-o-w
- Lower inventories with larger mills support prices
- Hope floats for revival in Europe demand
Morning Brief: The India Steel Composite Index rose to 153.10 points for the week ending 30 September, 2022, up 1.2%.
The longs index edged up 1.58% to 155.4 points. Flats too showed resilience, upping a little under 1%. The uptick is perhaps negligible but, more importantly, flats have made a comeback, upping consistently since the last three weeks, indicating that prices have bottomed out.
Factors supporting the price uptick
Longs
1. BF:IF price gap normalises: In longs, the uptick was warranted by the fact that the large mills’ prices had almost converged with mid-sized mills. Tier-1 mills recently increased list prices for early October sales. As a result, the INR 1,000-1,500/t spread seen around a month back is normalizing to around INR 2,500/t.
Mid-sized (induction based) mills could ease their prices because sponge iron prices had eased. However, currently there are mixed responses from sponge makers over Russian coal usage.
2. Inventory depletion fuels restocking demand: The primary mills have low inventories in long steel which is encouraging them to keep their prices up. The depletion in inventory happened with the production cuts affected in June, which balanced out supply against demand. Now, there is a restocking demand which is supporting the longs prices.
3. Good Q3 demand prospects: The third quarter (Q3) is traditionally a good one from the construction demand perspective and hence mills are bracing for a good demand pull which will also support the price uptrend.
Flats
a. Restocking demand: There is restocking demand in flats too, which is moving inventory at the mills’ end. It may be recalled that end-users as well as stockists had moved to the sidelines, waiting for prices to bottom out in the aftermath of the export duty in end-May. However, now that prices have bottomed out, buyers are returning to the market, keeping flats supported.
Moreover, the production cuts also allowed for flats inventory depletion at mills.
b. Festive demand pull: Buyers are returning buoyed by festive expectations. There is good demand from downstream users like automotive. India’s auto sales revved up in September as auto manufacturers ramped up dispatches to dealers to satiate festive demand and October is likely to sustain the momentum.
Demand for home appliances is expected to be better in the second half of the current fiscal compared to H1.
Mills raised prices by INR 500-1,000/tonne for early October, hoping to ride this festive demand.
c. Optimism on resumption in global demand: SteelMint understands that the rising gas prices in Europe may allow for a revival in demand for Indian steel from Europe. Several mills in Europe have shut shop temporarily as they struggle with spiralling natural gas and energy prices. Also, supply disruptions from Korea can allow for sourcing from India. Mills and traders are upbeat that some enquiries may get translated into deals in a few weeks’ time. The optimism is propping up prices too especially since flats comprise over 70% of steel exports from India. However, higher interest rates and energy costs will also dent the steel demand in Europe.
Outlook
Secondary mills’ cost pressures may ease further in the short term because of two reasons. First, thermal coal issues have improved since the onset of the Russia-Ukraine war, although reactions to Russian coal are a mixed bag.
Secondly, several bulk scrap consignments are slated to come to India this month as availability of the same has increased at competitive pricing.
But there are fears that in the medium term, with the onset of winter, South African coal will be diverted to Europe. Such a scenario may raise the spectre of supply tightness and rising prices.
In flats, with the rupee sliding to 82 to the dollar, coking coal imports will be dearer, a factor that will keep prices supported.
With imports now costlier, some downstream segments using imported material would prefer to fall back on domestic steel, which can make flats further resilient.
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. 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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