Indian pig iron prices drop 5% m-o-m in September as merchant supplies improve

• Merchant pig iron supplies pick up as BFs resume operations post maintenance
• Export prospects dented on duty impact 
• Scrap, DRI prices soften on increasing supplies, tepid demand 

Monthly average prices of steel grade pig iron in India dropped 5% m-o-m in September to INR 45,100/tonnes (t) from INR 47,400/t in August, as per SteelMint assessment. Prices have fallen even further to INR 44,800/t exw Durgapur (eastern India) in the beginning of October from highs of over INR 60,000/t seen in April. The decline has been especially sharp since the imposition of export duty on steel and raw materials towards the end of May.

• Recovery in production and supplies: Sources said that merchant pig iron supplies have eased in the market, with the blast furnaces of the primary steel producers and key merchant manufacturers resuming operations after phased maintenance and repair shutdowns in Q2FY’23. Most producers had opted for maintenance breaks after the government slapped a 15% export duty on finished steel products as well as pig iron. This threatened to create a supply glut in the domestic market, thereby severely impacting prices. The resumption in operations has stabilised supplies and softened prices.
• Drop in prices of substitute products: It should be noted that prices of substitute products such as ferrous scrap and sponge iron have fallen too, with an adverse impact on pig iron prices. The key reason for this is that sales and production of the mid- to small-scale induction furnace steel mills suffered in Q2 of this fiscal as primary steel prices edged lower to levels offered by these producers. SteelMint’s domestic scrap (ex-Mumbai) index slipped 7% to INR 39,600/t in September from INR 42,700/t in August. Pellet-based sponge (P-DRI) prices fell 7% to INR 32,300/t exw Raipur in September from INR 34,600/t in August.

• Exports down on tariff impact: Prices are softening as exports have dried up due to the 15% duty on pig iron even as supplies are increasing in the market. Export shipments have dropped sharply to around 25,000 t in September from over 200,000 t in May. The trend of increasing exports to the US since the outbreak of the Russia-Ukraine war has stalled, while shipments to neighbouring countries have taken a beating due to liquidity issues and dull steel demand.

• Sales drop in SAIL auctions: Sales of pig iron at auctions conducted by PSU steelmaker SAIL in September stood at 30,050 t. Sales dropped over 50% in August to around 28,000 t from over 54,000 t in July, as per SteelMint data. Auction volumes have been low over the past few months both in terms of allocations and sales. Prices, too, have fallen to INR 43,500/t exw Bhillai from around INR 47,000/t a month back amid overall bearish steel market sentiments.

Outlook

As supplies continue to recover, pig iron prices are expected to remain soft, as per SteelMint assessment, especially because domestic coal prices are seen moderating further in Q3FY’23. Sponge prices have dropped on lack of buying confidence, with supplies increasing in the market amid low demand for finished steel. On the other hand, the upside to scrap prices remains capped due to sizeable imports of cheaper bulk cargoes in September as Turkey remained away from the market. Other South Asian consumers such as Pakistan and Bangladesh are tackling liquidity issues and lacklustre steel demand, further allowing for entry of cheaper bulk material into India. Therefore, domestic pig iron prices may ease further.