India’s average HRC-rebar spread narrowed down m-o-m in Jan’22 by around INR 1,700/tonne (t) ($23/t), from INR 10,300/t ($138/t) in Dec’21 to INR 8,600/t ($115/t) in Jan’22.
In 2021, the spread had swung within an exceptionally wide range, from as low as INR 2,425/t ($32/t) in Jan’21 to hitting an all-time high of almost INR 16,000/t ($214/t) in Jun’21.
Rebar sees sharper rise
Benchmark trade-level HRC prices have traditionally remained higher than blast furnace route rebar rates, ex-Mumbai. However, data reveals rebar did overtake HRC for six months in a row over Jan-Jun’20.
At this juncture, the narrowing spread has been influenced by the sharper rise in rebar prices rather than in flats. For instance, m-o-m in January, monthly average rebar prices rose by INR 300/t ($4/t) from INR 55,100/t ($ 737/t) in Dec’21 to INR 55,400/t ($741/t) in Jan’22. On certain days, prices across locations traded at a higher INR 58,500-59,000/t ($782-789/t). In comparison, HRC prices actually fell by a far steeper INR 1,400/t ($19/t) from INR 65,400/t ($875/t) in Dec’21 to INR 64,000/t ($ 856/t) in Jan’22 while daily prices hovered at around INR 65,000/t ($869/t). This narrowed the spread further by around INR 7,000/t ($94/t) on some days.
Why are long products showing an uptrend?
Rising gas prices in Europe: The escalating gas prices in Europe and certain Middle Eastern countries are having a positive impact on Indian long products. The elevated energy prices are pushing up power tariffs, making it more viable for overseas mills to import billets rather than melt the metal in their furnaces and roll into billets. As per reports, Eurozone energy bills are up 54% over 2020. Metal smelters in the Continent have been forced to curb production.
Europe’s energy crisis was fuelled by lack of adequate supplies as it emerged from the 2020 lockdowns. The crisis was aggravated by inadequate wind energy generation and nuclear power outages.
Mid-January, Indian mills had thus booked around 90,000 t of billets for exports at offers raised by $10/t to $715-720/t levels. In late January, a state-owned mill booked 30,000 t of blooms while billet export prices touched three-month highs.
Raw material costs burn a hole: The primary and secondary mills are labouring under high coal prices. Even if the primary mills have a buffer through the quarterly contracts, as the quarter ends, they will feel the heat of rising coking coal prices. Spot prices of the Australian premium HCC have again climbed to $445/t FOB levels.
The secondary mills, highly dependent on imported thermal coal, are finding thermal coal too hot to handle. Portside prices of RB2 from South Africa are ruling at INR 15,000/t ($200/t), from INR 11,000/t ($147/t) in Dec’21, hitting a high on supply tightness.
Global iron ore prices, upbeat on China’s production prospects, were up by about $47/t since end-Nov’21 to $132/t while the Odisha iron ore fines index was up INR 400/t ($5/t). Once China resumed production, pellets imports from India pushed up export as well as domestic prices. Domestic pellet index prices in the last assessment were up INR 350/t while export offers were from $120/t in Sept’21 to the current $166/t.
Construction accelerates in Q4: The last quarter of the fiscal, January-March, is traditionally a good one for construction since the weather supports such activities and, government projects near deadlines. This creates a higher demand for long products used in construction, a factor that will allow longs prices to rise or sustain.
Outlook
Long products are expected to perform better in the short term. There is room for further northward movement against the backdrop of rising gas prices in Europe. Energy prices in Europe will likely stay elevated through the winter, fuelled by high heating demand.
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