Price rise in a sector that is passing through a critical phase characterised by subdued demand and policy logjam, impeding raw material sourcing and delaying fresh capacity augmentation amid a constant threat of cheap imports, is a welcome sign.
Long products in India are witnessing increasing prices for the last few days. Global iron ore prices (Fe: 63.5%) have moved up from $115/t cfr China to $120/t. Coking coal prices, however, came down to the current level of $120/t fob Australia for long-term buyers and spot prices, accounting for around 60% of total demand, dropped to around $108/t fob.
Although NMDC has retained the domestic prices of iron ore in April 2014 at the existing level of R4,500/t for lumps and R2,910/t for fines for a limited volume of supply, a good number of steel plants have to pay more for supplies through the auction route.
As a result, while sponge iron prices have seen a move upwards from R21,200/t to R21,750/t, domestic melting scrap prices have gone up to R32,200/t (including taxes) following a rise in global prices of melting scraps (HMS 1&2) to $370/t cif Mumbai. Ship breaking scrap is presently available at R26,800/t (excluding taxes).
Accordingly, the prices of ingots and billets have gone up to R31,500/t (at Raipur, excluding taxes) and R32,200/t, respectively. The net effect of the rise in prices of raw inputs translates into rise in prices of rebars by R300/t to R46,650/t at Delhi.
A similar range of price rise is not visible in flat categories. HR coils are kept at R45,000/t (average ex-works). The price increase/decrease in flat in the last three months has been largely absorbed. It is well known that global price movement immediately impacts domestic prices of flat products and has little/no effect on long products in India, except through the prices of scrap.
Domestic HRC prices have little scope to move up in view of imported price of $545-550/t cfr Mumbai available from Russia and China. In HR coils, additional capacities are created which would further enhance domestic supplies in the coming months and hence there is hardly any immediate urge to build up inventories, which may not be the case with regard to long products. Also, India is a net exporter of HR coils and hence any unmet domestic demand which offers a higher realization compared to exports would be given a priority in supply. In CR coils, India is a large importer as imports with negligible import duties are available from Japan and South Korea. This would make it immediately difficult to hike prices, except the supplies to OEMs under quarterly/annual contracts.
The official statistics on WPI reveal that wire rods, joists/beams and rails have experienced upward movement of indices, while for rebars and rounds, the indices reflect marginal fall in March 2014 compared to February 2014 level.
This may be corrected once the February figures undergo a revision. The real estate and construction markets are showing a fair amount of activity and no doubt, a feel-good factor in the coming months is the force behind this. If the same is strengthened with the formation of a stable government at the Centre, the long product price rise may be sustained.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal
