Production, prices likely to be under pressure in Jul’21
July will probably be a sluggish month, with both production and prices under pressure, especially from the long products perspective. Almost 30-35% of secondary mills have shut operations (both melting and rolling), forced by negative margins. Raw material prices have been rising, pushing them on the backfoot. Odisha iron ore fine prices are threatening to touch INR 10,500/t levels and lumps are ruling at a little below INR 14,500/t. Consequently, the conversion spread between billets and rebar are not as per expectations.
Inventories
Where larger mills are concerned, they are still holding inventories for almost a month and do not foresee demand recouping to normal levels in July.
Prices
Market forces may push longs prices to correct by another INR 1,000-2,000/tonne before they find support by Aug. This is because, many of the smaller plants have closed shops which will result in supply tightness in July. By Aug, supply and prices will find equilibrium. The smaller units are not expected to resume operations soon. As a result, some supply crunch may continue into Aug.
“July will be a pressure month for larger and smaller mills. Some production cuts are expected from the smaller mills and price cuts from the larger ones,” says a market source.
In flats, mills recently cut domestic prices by INR 1,500-2,000/t on weak demand and lack of exports to Europe and Vietnam.
Exports
Exports in July may touch 1-1.25 million tonnes, lower than 1.75 mn t in May and around 1.50 mn t in June since vessels supply and higher freight are still a challenge.
The Russian export tax is turning out to be a key determinant of Indian exports prospects. There had been expectations that flats exports prices would hover around $970-980/t after coming down from $1,100/t levels in May. But the Russian prices of $855-860/t have spoilt prospects. China too perhaps is waiting to see the full impact of Russia’s proposed export tax. Consequently, Indian mills are waiting to see whether Russian supply increases and prices fall further.
Imports
There is little scope for imports, either from Russia, China or Japan since these countries do not have allocations and their prices are high.
Outlook
Stockists inform that since many auto OEMs are back to their 100% capacity utilisation, by end-July, they can expect some restocking to take place. This may support flats prices by month-end although longs will take a little longer to recover.
Prices as on 8:55 IST, 06 Jul. d-o-d changes indicated against closing price of 05 July
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