Indian steel mills are bracing for a price hike in long products, by about INR 1,000/t anytime after 15 Aug’21, SteelMint learnt from sources. If this happens, it will be the second in the current month since mills had opted for INR 1,000-1,500/t price increase in the first week of Aug’21.
“Rebar prices will probably take another hike of over INR 1,000/t after 15 Aug’21,” a source said.
SteelMint’s price assessment for blast furnace route Re-bar (12-28mm) stands at INR 51,500/t exy-Mumbai and wire rod (5.5 mm) at INR 50,800/t exy-Jharkhand.
Factors that will support the second price hike
- Falling inventory: Market sources say there is hardly any inventory lying with the primary mills at present because of the substantial export bookings made in Jul’21 for Aug-Sept’21 shipments. A source informed, three leading mills have limited inventory to offer in the domestic market and a certain primary producer is unable to accept domestic orders because it is committed to honouring its export bookings. In fact, a source at one of the above mills told SteelMint: “We do not have any inventory to offer in the domestic market in the current month.”
“For primary mills, from INR 49,000-49,500/t levels in Jul’21, there was a hike of INR 1,000-1,500/t in Aug. We feel another price push will come soon,” said another source.
- Output cut pressure on secondary mills: Secondary mills at present are working at 40-50% capacity utilisation. So, naturally they also do not have adequate inventory with them and are looking to increase prices. “There is a momentum in secondary prices. Primary players increased prices lately. Secondary mills have held on to theirs. Now they feel they too can increase prices,” said a primary mill source.
- Demand-side dynamics: Will the market absorb the price hike, if it happens again? No infrastructure construction player is going for large parcel purchases at present. Only those projects which need material urgently are buying. But the lack of domestic demand is a normal trend at this time of the year because of the monsoon. And, TMT only has exposure in the construction sector, which almost stalls during the rainy season. Mills say, post-monsoon will see a demand push that will support the price hike. Many large infrastructure projects are starting, which do not have too much stock and are just beginning to lift at the traders’ level.
- Traders keep inventory: The traders, meanwhile, have kept some inventory with them because they are anticipating that prices of rebar would increase in Aug’21. July-Aug is a transition period for which mills do not ink long-term contracts with the trade segment. As a result, stockists and traders do not generally accumulate a lot of inventory at this time of the year.
Price movements
Mills had booked substantially in Jul’21 since exports were fetching higher realisations. Delivered export prices were fetching around INR 51,500/t if converted into Indian currency, plus-minus INR 500/t, compared to the Jul’21 average monthly price of a little above INR 49,000/t. As it is, domestic benchmark rebar prices had fallen by over INR 3,000 in Jul’21 since May’21 and secondary prices by INR 2,500/t.
“Had producers been operating at higher margins they would not have gone for the price hike. Prices had bottomed out. So from here, it is unlikely prices will drop,” observed a source.
Outlook
The inventory accumulation by traders may start from Aug-end. So there will be enough scope to increase prices by the mills in the next 10 days or so.
However, Sept would be a turning point. There is a tendency to increase sales in this month to make up for the monsoon loss and projects to start buying since they know by Sept-end monsoon will start receding. If demand picks up then, prices will too.
Except that falling iron ore prices may have an impact.
Prices as on 9:00 IST, 16 Aug. d-o-d changes indicated against closing price of 13 Aug. Rebar changes not indicated due to change in contract
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