Conversion spread from sponge iron to billet surged up by 9% in Durgapur & about 17% in Raipur m-o-m in Dec’20. It rose further by 20-21% in both the locations during Jan’21.
Currently, the monthly average conversion spread from sponge P-DRI to Billet in Raipur & Durgapur is hovering at INR 14,050/t & INR 13,650/t respectively, as per data maintained by SteelMint.
Improved supply of sponge iron is a key factor behind the uptick in margins as billet prices gain sharply by INR 3,000-4,000/t. While, there was a slight uptick of INR 1,000-1,500/t in sponge iron offers, in the past one month.
Strong export demand of induction grade steel is another major factor for strengthening margins of billet makers. As per SteelMint data, India’s wire rod exports surged five-fold, while billet exports went up two folds to Nepal, m-o-m, in Dec’20. Nepal is a prominent buyer of Indian induction route billets & wire rods due to logistics advantage.
Analysis
Following good margins on billet trades, few hot rolling mills in Raipur have started offering billet in the spot market rather than produce structural steels.
Outlook
Sources are assuming that with improving supply of billet amid moderate domestic demand, the margins of induction furnaces are less likely to improve further and are expected to stay firm along with hopes of a slight change in sponge iron and raw materials prices on sufficient availability.
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