Inquiries from Indian mills for seaborne scrap have fallen sharply in the last two months. But mills are unlikely to return to the imported scrap market before mid-Aug’21, SteelMint estimates. Sept is a better period in terms of construction, a month that also, historically, sees long prices heading north.
Reasons for limited inquiries
- Preference for domestic substitutes: With imported offers being high, mills prefer domestic scrap and sponge iron. Domestic scrap prices were volatile but down, helping the mills find a comfort zone. HMS (80:20) prices in the western region were assessed at INR 33,000/t, DAP Mumbai on 09 July, down INR 100/t w-o-w while Jalna prices ruled at INR 32,000/t, down INR 300/t w-o-w. Sponge iron too offered solace, with ex-Raipur prices hovering from a little above INR 28,000/t to around INR 31,000/t since mid-May’21. Considering Dubai origin HMS 80:20, the landed price would come to INR 37,500-37,600/t in Mumbai.
- Falling steel margins: With demand reduced, most of the smaller mills have opted for production cuts while the larger mills are burdened with high inventory. This, in turn, has lessened the demand for raw material, including scrap. With the states under lockdowns these past two months, construction took a beating, which impacted demand for rebar and other construction products. Finished steel items prices were thus under pressure.
- Bid-offer disparities: Suppliers were more interested in selling to Pakistan and Bangladesh buyers since they were ready to accept the higher prices. Shredded deals in Pakistan were reported at $548-550/tonne (t) CFR Pakistan while, in India, majority of the bids were around $530-535/t CFR Nhava Sheva.
- Rupee weaker: The depreciation in the rupee (INR) versus the dollar made imports costlier, forcing mills to look at domestic scrap. The INR lost more than 4% to the dollar in the last three weeks, recently depreciating to a nine-month low of 74.5.
Outlook
Imports are likely to remain low till demand rebounds, which may happen mid-Aug. Since mills have not booked over the last two months, they do not have much scrap in stock. If demand or prices go up, then mills will not have much inventory to fall back on, on the basis which domestic scrap and sponge prices may see a jump. Since Sept onwards is better in terms of construction, mills will start booking mid-Aug. It will take 30-40 days for the consignment to reach plants. But, prior to that, the larger mills will have to liquidate their inventory.
Prices as on 9:10 IST, 14 Jul. d-o-d changes indicated against closing price of 13 July
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