SteelMint India steel index drops to 5-month low. Will prices fall further?

• Index still feels export tax impact, remains in negative territory w-o-w
• Drop in global steel, raw material prices influences domestic scenario
• Rainy season’s onset, sustained low exports activity may offer scope for further price fall

Morning Brief: SteelMint’s India Steel Composite Index dropped to a five-month low of 159.85 points on 10 June, 2022. W-o-w, the index fell 2.6%. The last time it had hovered around such levels (156.4 points) was on 21 January, 2022.

In the week under review, the India Flat Steel Composite Index inched down further by 3.51% w-o-w to 165 points. The India Long Steel Composite Index also dipped 1.59% in this period to 155 points.

Reasons for the sustained fall
The index has been moving in negative territory since 15 April amid a tepid demand scenario. However, it culminated in its deepest fall on 28 May, the week right after the steel export tax re-adjustments.

The latest w-o-w fall can be attributed to a few factors:

1. Global prices correct downward: Global prices have corrected due to lack of demand for finished steel. The EU remains satiated while China is showing a supply-demand mismatch after emerging from Covid lockdowns. Vietnam is leaning towards domestic sourcing.

Indian mills had adopted a wait-and-watch approach right after the tax imposition. However, they are now gradually testing the export waters once again with boron-added HRC offers at $730-740/t CFR Vietnam, a conventional market. In billets, Indian mills’ bid indications were at $580/t FOB while offers stood at $620-640/t FOB. It may be mentioned boron-added material is outside the purview of the tax. But, at such price levels, mills’ HRC export realisations would be at around INR 53,000-55,000/t ($680-700/t) lower than what domestic is fetching (trade-level hot rolled prices were at INR 63,000/t ($805/t).

2. Raw material prices correct: Prices of steel-making raw materials have corrected in the domestic and global markets. Monthly average coking coal prices have dropped 27% from $506/t FOB in May to $368/t FOB Australia so far in June.

Portside ex-Gangavaram imported RB thermal coal from South Africa is a tad down from INR 22,750/t ($291/t) seen a month ago to current INR 19,000/t ($243/t).

Domestic sponge iron, CDRI, ex-Rourkela prices have dropped from INR 36,000/t ($461/t) levels a month ago to the current INR 31,500/t ($404/t) while Raipur PDRI prices moved in a similar range.

Indian pellet index,PELLEX, lost more than INR 2,500/t ($32/t) in one month thanks to the recent 45% export duty from nil slapped on the material.

Raw material prices have overall dropped on lacklustre finished steel demand globally and domestically, creating a case for lower steel prices in both markets.

3. Export tax impact: Prices continued to move down in the flat steel segment this week, as the 15% export duty impact sustains, though at a reduced pace compared to the past weeks. There are expectations that prices will move down further, a sentiment that is keeping buyers away from booking significant quantities.

There are still no offers to the EU, while Nepal buyers are awaiting more clarity on prices amid the continual decline Indian domestic flat steel prices.

Indeed, demand has improved since May but the above factors have dampened buying sentiments.

Outlook
There is some elbow room for longs prices to fall further in the next couple of months because of the approaching monsoons although the drop will not be similar to June’s.

In flats, especially hot rolled products, prices may continue to fall if exports and domestic demand do not pick up. Then, mills may have to opt for maintenance shutdowns to offset the supply-demand imbalance.

The India Steel Composite Index
The India Steel Composite Index is assessed on a weekly basis: every Friday at 18:30 IST, as per the weighted average prices based on manufacturing capacity and production.

SteelMint considers the Composite Index with the base year being 3 January 2020 (financial year 2019-2020) and the base value as 100. The Composite Index does not give the absolute price. The Indian steel industry is broadly classified into the BF-BOF and the electric/induction furnace routes. Keeping this broad classification in view, SteelMint proposes to release the Composite Index by considering both production routes by manufacturing capacity and the production weighted method to compute the index for India. For details click to view the methodology document.