- Input costs, exports outlook lift CRC prices in Apr
- Automotive and infra pent-up demand to keep prices supported
- Europe’s revised import quotas likely to keep Indian mills active from June
- China’s emergence from lockdown may reverse price trends globally
Morning Brief: The delta between hot rolled and cold rolled products widened to an eight month high of INR 10,300/t ($133/t) in April, 2022 against a narrower INR 7,600/t ($98/t) in March. The widening is mainly on account of CRC prices which rose by a higher margin of INR 5,200/t ($67/t) in April to INR 86,300/t ($1,114/t) against 81,100/t in March. HRCs, on the other hand , increased by a nominal INR 2,500/t ($32/t) to INR 76,000/t ($981/t) from INR 73,500/t ($948/t) in March.
Reasons for the higher spread
1. Upward correction in CRC prices: The spread was expected to widen in April since CRC prices had over-corrected to unviable levels of INR 67,000-70,000/t ($865-903/t) over December 2021-February 2022, dragged down by the lull in exports to Europe as Indian mills had exhausted their quotas.
However, prices uptrend from March as the Russia-Ukraine war disrupted supplies to Europe, which started buying from other countries, including India, to make up for the shortfall from the two warring nations. March itself saw a rise in CRC exports to 0.09 mnt from 0.06 mnt in February.
2. Secondary stocks kept prices down: Several primary mills had cleared their secondary stocks early this calendar through auctions and non-confirmed orders (NCOs) at rates nearly INR 10,000/t ($129/t) lesser than list prices. Such aggressive pricing had also pressed down CRC prices, creating room for subsequent corrections.
3. Escalated cost of production raises prices: The cost of production has also increased since the onset of the war, sending all input material prices, ranging from coking and thermal coal to ferro alloys and logistic, spiralling upwards.
4. Merchant producers recede: Standalone merchant CRC producers had been back in action, when prices of the material had been rising middle of last calendar, increasing supply in the process but ensuring a drop in prices thereafter. However, when production costs started climbing up, these players receded from the market, which created a supply crunch, supporting raised CRC prices from primary mills.
The China factor
The weakness seen in global HRC demand may reverse as soon as a demand- and procurement-bruised China emerges from a Covid lockdown. Talks are on for a full withdrawal of the lockdown by 20 May.
“If that happens then there will be a quick reversal and global prices may see an uptick. China does not sell much to Europe because of the quota restrictions. However, it is a price-setter globally. So Indian HRC-CRC price sentiments will also be supported by Chinese movies,” said a mill source.
China’s domestic demand will spring back post-lockdown, but its production cuts will keep prices high. It will move away from exports which will reduce supply globally and help to firm up international prices.
Outlook
Market circles have a fairly optimistic short-term outlook.
First, sanctions on Russia will keep Europe scouting for material elsewhere, including India. Since Europe is predominantly a flats market, Indian HRC-CRC prices will remain supported although the demand outlook for EU is a slowed one. India will have an edge over China or Korea once the revised quotas are unveiled around June. The Korean strict monitoring system does not allow mills to exceed their quotas while China, hedged in by EU quotas, mainly exports to South East Asia.
Secondly, the auto sector is looking up domestically. The chip shortage has dented production by 2-3% as compared to the 15-20% seen previously, as per a primary mill source, while demand is good with an orderbook overhang of 3-4 months. Auto demand will keep CRC prices supported, said the source.
Thirdly, “domestic demand will remain stable perhaps even in monsoon since buying has been low so far. Moreover, most of the infrastructure work is pre-fabricated and can remain unaffected by the rains which may help keep flats prices stable till June,” said the source.
Leave a Reply