- Longs prices are expected to increase higher than flats
- Chinese billet imports may increase amid power crisis in key steel producing regions
The price spread between domestic hot rolled coil (HRC) and blast furnace (BF) grade rebar prices has been consistently and sharply wide since the last six months, data maintained with SteelMint reveals.
In fact, the gap, which traditionally stays range-bound at INR 3,000-4,000 per tonne (t) ($41-54/t), shot up to a record almost INR 16,000/t ($216/t) in June. The delta has narrowed since then but not too much. It is resting at over INR 13,500/t ($182/t) after touching INR 15,600/t in July and almost INR 14,900/t ($201/t) in August.
Average trade-level benchmark (IS 2062, 2.5-8mm) September HRC prices were at around INR 65,400/t ($884/t) against the primary mills Fe 500D rebar prices of INR 52,000/t ($703/t), showing a spread of over INR 13,500/t ($182/t) (minus 18% GST).
Why has the spread widened?
Actually, in a world where global pulls and pressure have inevitable fallout on India’s trade dynamics, this delta too is reflecting the macro trend. Flats demand is higher globally compared to long products in these pandemic times. In fact, more than rebar being at a discount, it is a scenario of HRC being pulled higher because of increased global demand.
- Higher consumer goods demand in West: With Europe and other western countries unlocking post-lockdown, there has been a greater need for vehicles. Work-from-home has necessitated purchase of more white goods, furniture etc leading to higher HRC and CRC consumption by the downstream industries in the West.
- China’s export cuts: China’s steady drop in exports since June (6.46 mn t in June, 5.67 mn t in July and 5.05 mn t in August) has created a vacuum in flats supply. It may be mentioned that China’s exports comprised more of flats historically. China’s absence is being filled up by others suppliers, including India, offering scope to raise HRC prices.
- Lockdown dents rebar demand: On the other hand, construction activities have not picked up too much in southern and South East Asia, including India, due to Covid lockdowns. Moreover, India has been experiencing a late monsoon. Both factors have impacted rebar lifting, keeping the spread wide.
- Government influence: Earlier in January, BF-grade rebar prices had even touched INR 55,000/t ($743/t) levels. However, government intervention, allowing secondary mills to participate in government infrastructure projects restricted the scope to raise prices by the larger mills. It is in the government’s interest to keep rebar prices down so that project costs do not escalate. Consequently, longs prices have not been able to rally in comparison to hot rolled.
Will rebar prices rise?
SteelMint estimates that there is a greater possibility of longs’ prices going up. The secondary players enjoy a major share in rebar. But coal and sponge iron prices are escalating, and now iron ore too. High raw material prices will dissuade secondary mills from lowering prices, a factor that will allow the larger mills to raise their rates. It is heard that smaller players in Delhi Mumbai and Chennai have already raised rebar prices to INR 51,000/t ($689/t) levels against the BF-grade INR 53,000/t ($716/t).
China’s severe power crisis and steel production curbs may drive the mills there to import billets which would open up opportunities for Indian mills and have a bearing on domestic BF-grade rebar prices.
Some green shoots for HRCs – There are two green shoots for flats though.
- Vietnam has unlocked from 1 October after three months. Indian mills may resume offering HRCs to this traditional flats destination.
- Europe quotas will open up from January and India mills may start offering for Jan-Mar’22 deliveries.
Outlook
The near term may see a higher rate of increase in longs prices compared to HRCs. Flats producers are still enjoying meatier margins and can afford to roll over prices and absorb the higher production costs if sales do not pick up.
The gap may narrow down but not increase from current levels in the near term.
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