Morning Brief: Indian scrap, sponge iron prices rise despite weak demand in finished steel

Indian scrap and sponge iron prices continued to rise yesterday on account of higher raw material cost (iron ore prices hit a record high in recent auctions). SteelMint’s daily scrap index increased by INR 400/t to INR 40,000/t for prime grade scrap (ex-Mandi) and SteelMint’s daily billet index closed higher by INR 550 to touch INR 43,400/t (Exw-Raipur)

However, finished steel demand continues to remain weak. We expect profit margins to narrow down for small and medium sized steel players in coming months.

Speaking to several mills, SteelMint observed that inventories have increased in May with large mills especially for long products. This is one of the key reasons why mills raised only flat prices and not the long steel prices. With ongoing lockdown in several states and upcoming monsoon season, demand is unlikely to improve for next few months.

Billet exports are also unlikely to pick up immediately: Another important factor that has been driving long steel prices for last few months is billet exports. We expect that exports will remain low for two reasons: one is that China is not buying Indian cargoes due to strict berthing norms at Chinese ports. There is news that a lot of Indian billet parcels which had been booked for China are finding alternative markets. Secondly, Nepal has extended the lockdown till 14 June. It could get extended further if situation does not improve.

India exports about 500,000 – 600,000 t billets every month, out of which 40-50% is being shipped to China and Nepal. We do not see much transactions taking place in next few weeks.

Chinese iron ore & steel futures: Chinese iron ore and steel futures closed higher yesterday amid easing production curbs in Tangshan.