Indian billet prices have corrected by almost INR 2,000/MT (USD 30) in last two weeks making it trade at 2-months low.
SteelMint’s latest assessment of induction grade billet is reported at INR 34,700/MT (ex-Mumbai), equivalent to USD 506/MT on ex-mill basis, excluding 18% GST, against a price level of INR 36,800/MT (USD 537), two weeks ago.
What is weakening billet prices ?
1. Low seasonal demand due to monsoon, which relatively reduces the number of construction activity.
2. Increased production by smaller and mid-sized mills, which is due to high margins in the past few months.
3. Slump in demand from neighboring country Nepal, which is one of the largest buyers of Indian billets and contributes over 30-40% of total Indian billet export.
4. Plummeting Indian export in last few months due to festive season in the global market. Notably, Indian Finished long steel exports have dropped over 22% in the month of Apr.
5. Widening conversion gap between scrap/sponge to billet, which was at an all-time high.
What may support prices?
1. Depreciated Indian currency, which may support exports and imports will remain expensive.
2. Indian billet prices are close to export parity, any further fall in domestic prices will increase the scope of exports in coming months.
3. Indian export parity is at USD 500-510/MT FOB levels, domestic prices are hovering around INR 34,000-35,500/MT (USD 496-518) on Ex-mill basis.
4. Higher scrap prices in global market. India scrap imports are about 25% of total demand. This means domestic scrap and sponge iron prices will remain firm. Scrap prices in global market unlikely to correct sharply as US consumption has increased. US is the largest scrap exporter in the world.
5. Landed cost of imported scrap is around INR 27,500-28,500/MT. Considering a conversion cost of around INR 6,500/MT (USD 95). Billet Prices are likely to hover in the range of INR 34,000-35,000/MT (USD 503-510).
What may not favor billet prices?
1. Increased supply of re-bars from primary players. JSPL has started new capacity at Angul, which is producing around 70,000 MT re-bar per month.
2. Scrap demand may decrease from Pakistan due to upcoming general elections next month, which means the government can not initiate new projects and demand for steel may remain low. Chances are scrap availability to Indian market will improve.
3. If Indian mills do not conclude export deals in coming weeks, inventories will start piling up and it may put pressure on prices.
Conclusion
It is expected that the sharp fall from these levels are limited however exports will play an important role that will support domestic prices.
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