India: Conversion Spread Fall for EAF/IF Operators

With spurt in sponge prices, the conversion spread is falling consistently for Indian Ingot & Billet manufacturers as price rise is not in same proportion for Ingot/billet then in sponge iron.

The analysis have made for Raipur & Durgapur where the EAF/IF melts 80-85% sponge to produce Ingot/billet.

Currently, the conversion spread (margin) are evaluating from P-DRI to billet in Raipur at INR 10,000-10,200/MT & in Durgapur at INR 10,000/MT. The manufacturers shared, present conversion spread is not much good despite increasing prices.

In the 1st week of July’17, the furnace owners in Raipur & Durgapur were able to fetch the conversions of around INR 11,000-11,200/MT, which has declined approximately by INR 1,000/MT to INR 10,000-10,200/MT.

According to the manufacturers on an average they required conversion spread of approximately INR 10,000-10,500/MT which is prevailing at an around the same level. They further added, increasing prices of other key melt products like Pig iron, Scrap & Silico-Manganese are other major burdens for them as the prices of the respected products are also on increasing mode.

Industry participants believe that production cut may resume by EAF/IF operators as conversion spread is to decline further due to seasonal low production of sponge which may remain to support sponge prices and dull demand for rebars may further ease price pressure on Ingot/Billet manufacturers.

Note: The conversion spread represents the speculative cost of production and margins. If the conversion spread is above industry average then the price of the products is higher than the input cost (including miscellaneous, raw material cost and power cost) and the spread is profitable. If the spread is lower than industry average then the products are priced at less than the input cost and are not profitable.

Source: SteelMint Research