Weak offtake pressures steel prices in south India

• Weak finished steel demand pressures prices
  
  
• Some steelmakers impose production cuts
  
  

Steel prices in south India witnessed a decline due to sluggish movement of finished steel products and weak buying interest in the market. The slowdown in demand created inventory pressure on steel mills, forcing manufacturers to reduce offers. The weak steel market also negatively impacted raw material prices, including sponge iron and billets.

Sponge iron

Sponge iron prices in the Bellary region declined by around INR 600-700/t w-o-w, reaching nearly INR 25,700/t ex-pellet for PDRI as on 8 May. The major reason behind the price correction was weak demand from steel manufacturers due to poor offtake of finished steel products.

Currently, sponge iron manufacturers are facing pressure from high production costs. Raw material prices, especially iron ore pellets and non-coking coal, remain elevated. Pellet (63%) prices are hovering around INR 10,750/t ex-Bellary, while RB2 non-coking coal prices are assessed at INR 11,100/t ex-Gangavaram Port as on 8 May.

One sponge iron manufacturer informed BigMint that producers are currently incurring losses while selling sponge iron in the merchant market because of the higher raw material costs.

Meanwhile, melting scrap prices in the Chennai market remained stable at around INR 35,800/t w-o-w, by steady demand from steel mills. Scrap suppliers also maintained stable offers due to reduced competitiveness from alternative raw materials such as sponge iron.

At present, the material mix between melting scrap and sponge iron is estimated at around 70:30.

Imported scrap prices also remained on the higher side. HMS 80:20 imported scrap prices are currently hovering around $378/t CNF Chennai of Australian Origin. Due to high landing costs and longer lead time for imports, most steel manufacturers are continuing to depend mainly on domestic raw materials.

MS billet

Mild Steel (MS) billet prices declined by around INR 500/t w-o-w in both Hyderabad and Chennai markets. The fall in prices was mainly due to weak buying interest from re-rollers, as many mills are already facing inventory pressure.

Another major factor behind the correction was the decline in raw material prices, especially sponge iron, which pushed induction furnace manufacturers to reduce their billet offers.

The current MS billet price in the Chennai market is assessed at around INR 44,500/t as on 8 May.

As per market reports, several steel mills in Chennai have already reduced their production capacities due to slow demand for finished steel products. Labour shortage is also affecting operations, as many workers who went to their native villages for assembly elections have not yet returned to work.

Rebar

Finished steel demand in south India is currently very slow, creating sales pressure for many steel manufacturers due to rising inventories at mill levels. To liquidate material, several mills have started offering discounts in the market.

As per market analysis, rebar inventories have increased by around 20-30% w-o-w. In many cases, inventory holding has extended by nearly 15-20 days depending on the brand presence in the local market.

Blast Furnace (BF) route rebar prices in Hyderabad are currently hovering around INR 58,400/t, down by nearly INR 1,000/t w-o-w.

Meanwhile, the price gap between Induction Furnace (IF) route and Blast Furnace (BF) route rebar is currently estimated at around INR 10,000/t in the Hyderabad market.

Leading steel manufacturers continue to offer induction route rebars in the local market at prevailing price levels, although selective discounts are being extended in offers to attract buying interest of customers :

Outlook

Steel prices are expected to remain slightly positive in the near term, as prices in many segments have already reached lower operating levels in the current market cycle. After continuous corrections in recent weeks, the downside in steel prices now appears limited.

One of the major supporting factors for the market is the elevated cost of raw materials. Prices of key inputs such as pellets, non-coking coal, and imported scrap are still trading at higher levels, which is keeping production costs under pressure for steel manufacturers.