India: Steel, raw material prices dip in Sep’22, coking coal bucks trend

• Production drop in Australia fuels coking coal price rise
• Metallics dip amid inventory build-up and subdued finished steel demand
• Going forward, rising raw material costs may support finished prices

Morning Brief: Mostly all steel and input material prices fell in September, except for coking coal. Subdued finished steel sales kept most raw material prices muted last month, although a better season looks to be unfolding in the third quarter.

SteelMint goes behind the scene:

Coal

• South African RB2: The bi-weekly index tracking the average portside ex-Gangavaram prices of the South African RB2 5500 NAR dropped a marginal 2% m-o-m in September, 2022 to INR 17,000/t against INR 17,310/t in August, 2022. Prices inched down because sponge iron makers preferred the comparatively cheaper low-CV RB3, which was available at INR 13,700/t end-September. Sponge players are finding it viable to blend Russian 6000 NAR with 4800 NAR RB3. Yet, some are blending RB3 with Australian 4600 NAR grade.

Russian coal has characteristics like high calorific value, and lower sulphur content, apart from being cheaper. Although prices have risen by around $10/t to about $195/t CFR India, still currently the material is cheaper by $20/t against South African RB2. Import volumes have steadily risen from 0.87 million tonnes (mnt) in May to 1.85 mnt in June, 2.14 mnt in July, 2.26 mnt in August and a provisional 2.21mnt till around third week of September.

Moreover, sluggish steel demand led to a drop in sponge iron demand too, which also kept RB2 prices subdued last month.

• Australian low-vol HCC coking coal: Average prices of the Australian low-vol HCC, rose 12% m-o-m in September to $290/t against $260/t in August. Coking coal stood out by showing a reverse trend among almost all raw material prices which showed a decline.

The reason lay in lower production in Australia, globally the largest producer and supplier of this coal. Its largest coking coal producing region, Queensland, recorded a 15% drop in production over the last five years, and by 9% to 135 mnt y-o-y in fiscal year ended June 2022.

Heavy rainfall in Australia due to the La-Nina weather pattern since the last three years has badly impacted coal production.

That apart, China’s informal ban on Australian coal imports since October 2020 has also impacted demand although requirements from Indian mills has increased. But with China having 25% share in Australia’s coking coal exports, the ban has taken a toll on production.

Meanwhile, major Indian mills, in a bid to diversify sourcing geographies for the sake of raw material security, are also increasingly buying US coking coal.

• SECL’s G9 (4750 GCV) auctions: CIL subsidiaries have gradually improved their offerings via spot auctions in tandem with gradual improvement in power plant inventory levels.

However, with recovery in power demand boosted by a surge in industrial and commercial activities ahead of the festive season, South Eastern Coalfields (SECL) opted against conducting an auction in September 2022.

The last auction was held in August which saw the average bid price at INR 7,682/t.

Ferro alloys

• Silico manganese 60-14: Prices of the bi-weekly 60-14 grade silico manganese index emerging out of Raipur dropped 5% m-o-m to INR 74,310/t in September, 2022 against INR 77,820/t in August. The decline occurred mainly on account of three factors: One, tight liquidity in the system forced smelters to offer at lower prices. Two, the downtrend in domestic steel demand and prices put smelters on the backfoot, forcing the liquidity crunch. Lastly, low enquiries from importing countries impacted domestic prices too.

Scraps and metallics

All showed a downtrend ranging from a 5% (sponge iron) to 7% (scrap and sponge iron).

• Pellet-based P-DRI: The pellet-based P-DRI, ex-Raipur, rose a marginal 2% to INR 32,310/t in September, 2022 (compared to INR 34,600/t in August, 2022). Prices dropped amid an overall lack of buying confidence as supply increased in the domestic market from Odisha amid low demand for finished steel.
• Steel grade pig iron: Pig iron prices dropped 5% m-o-m in September to INR 45,110/t (INR 47,390/t in August). The 15% export duty is leading to inventory build-up in the domestic market, putting pressure on pig iron prices.
• Domestic scrap: The domestic scrap (ex-Mumbai) index trended down by 7% to INR 39,590/t in September, 2022 against INR 42,680/t in August. The market is seeing considerable imports of cheaper bulk scrap from the US since Turkey has been absent from the ferrous scrap import market. Pakistan and Bangladesh are beset by liquidity issues and limited finished steel demand, further allowing for entry of cheaper bulk material into India.

Steel

This segment, comprising billets and finished, saw prices dipping marginally across the spectrum.

• Billets: The ex-Raipur billet index dipped a 2% m-o-m to INR 47,660/t in September, 2022 (INR 48,860/t in August) amid sluggish finished steel sales ahead of the festive season. Prices fluctuated throughout the month, in tandem with finished steel sales and production cuts by the smaller mills amid a monsoon that has taken time to recede and hampered construction activities.

Moreover, the slightly lower prices of raw materials like sponge iron, pig iron and scrap also supported billet’s downtrend.

• Rebar: The ex-Mumbai BF-grade dipped 3% to INR 55,940/t (INR 56,840/t) in September. The IF grade also dipped 2% to INR 54,780/t (INR 55,840/t) while wire rods (ex-Durgapur), fell 3% to INR 51,270/t (INR 52,760/t) last month.

Long products saw a dip amid lower raw material prices and sluggish domestic demand.

• HRC: Ex-Mumbai trade-level HRC prices lost 2% in September to touch INR 56,240/t from INR 57,180/t in August. However, the production cuts allowed the inventory levels to drop to comfortable levels and arrested the steep price falls. The export tax levy continued to stall exports and impacted flats domestic prices even though some restocking happened last month. The raw material price slide also kept prices subdued.

Iron ore

This raw material, in terms of fines, lumps and the high-grade 63% pellets, showed a mixed trend.

• Fines, lumps and pellets: Fe62% fines from Odisha upped a marginal 1% to INR 3,440/t (INR 3,410/t) while the Fe63% lumps (Odisha) dipped 1% to INR 6,900/t (INR 7,000/t). Fe63% pellets (DAP Raipur) lost 8% m-o-m to INR 8,160/t (INR 8,890/t).

Fines and lumps were more or less stable. Fines upped a little because of tight high-grade ore supply amidst lower production due to monsoons. Plants did not have much inventory but waited for prices to come down, which didn’t happen and thus lumps were used instead.

Lumps availability was also low in the rainy season but prices were on the higher side in August. Buyers waited for prices to drop, which did happen in September but marginally.

In the rainy season, prices of pellets rise but that of iron ore drops. But pellets dropped in September as producers wanted to clear the stocks accumulated over August when prices had been high. August had seen some steel restocking which had propped up sponge and pellet prices.

Short-term outlook

Prices of raw materials are likely to rise. Coking coal may sustain the uptrend amid constricted supply conditions from Australia and rising requirements from India as it enters the high demand season. South African thermal coal may get diverted to Europe for winter heating amid sky-high natural gas prices. This could limit RB2 supply to India and also make it costlier. Prices in finished steel seem to have bottomed out and are not likely to fall any further from current levels. Flat steel and BF-grade rebar prices may stay supported by higher coking coal costs.

However, imported scrap can keep domestic scrap prices under pressure, a factor that can ease IF-grade rebar prices. Usage of cheaper Russian coal with blends will further support a decline in secondary sector prices but the jury is still out on the former’s efficacy.