Posted on 02 Mar 2022
How will March pan out for Indian mills? Traditionally, it is a good month for domestic sales and demand is good currently. However, the Russia-Ukraine conflict has changed market dynamics, compelling Indian mills to move to the sidelines. Import enquiries are pouring in from the European Union (EU), Turkey, North Africa etc but Indian mills have suspended mostly all verbal or emailed contracts at present and are waiting to book in the upcoming month on expectations of higher prices.
What may happen?
SteelMint spoke to a cross-section of industry stakeholders to get a ring-side view of what awaits them in March:
Exports to steal a march: The month of March will be predominantly exports-driven this year. It seems mills will mainly cater to overseas markets, filling in the void created by Russia and Ukraine.
“It seems EU mills are currently at price levels similar to India’s. So, we hope the gap widens a bit for Indian exporters to come back stronger,” indicated a trader.
Flats: Indian mills are amply booked for March and whatever activity takes place in the upcoming month will be for April deliveries.
“The Russia-Ukraine conflict has changed market dynamics. The EU used to buy a substantial volume of flats from CIS and this supply will be impacted. If EU needs the cargo, it will not stop at overshooting the quotas,” informed a source.
Another source at a leading mill said: “I am not sure if mills will exhaust the entire quotas like they did last year. However, there are indications that some flat steel will get re-routed to EU through Turkey which is buying from India in significant volumes.”
Longs: Longs exports have not been exactly anything to write home about in the last one month. But the market expects action to hot up against the backdrop of the escalated geo-political conflict.
“Billets demand in the Mediterranean markets increasing,” informed an importer.
“The war will only help activity to return to the longs exports market,” said a source at a leading mill. EU mills, blocked from Russian and Ukraine iron ore and pellet supplies, will experience crude steel and hot metal supply shortage. They are already exploring India for prompt pellets cargoes, a trend that will spill over into billets and rebar, said the source. A fresh energy crisis is looming that will further hit crude steel output. Hence, longs exports, subdued will likely get reactivated.
A leading mill confided that it does not have any allocation yet but if orders are clinched, it will not shy away from booking at prices higher than current levels. It may be mentioned, the last billets deal from Turkey was closed at $740/t FOB to North Africa, a price that is making Indian mills bullish on North Africa demand.
An Indian mill is heard offering at $690/t FOB.
Russia exports around 13 mnt of billets per annum, most of which went to EU and if that channel is blocked it will definitely look at India. “It will also be cost competitive for EU mills since Indian steel is still cheaper compared to China’s,” said the source, adding that geo-political leanings will also favour India currently.
Mills bracing for price hike
Mills are bracing for another price hike for March sales. If energy prices rise, the cost of production will inevitably increase, making the finished product expensive.
“Prices will increase across the spectrum in March, because of rising raw material prices,” said a source at a primary mill. Flats will increase by INR 1,500/t compared to around INR 1,000/t in longs.
Secondary mills’ prices had breached record highs last week, impelled by steep raw material prices. Semis gained by INR 200-3,000/t and rebar by INR 1,300-3,000/t.
Monthly trade-level HRC prices averaged INR 66,300/t in Feb’22 while the SteelMint HRC export index touched $850/t.
Raw material prices see a fresh push?
The impending hike in finished prices will come on the back of already elevated raw material prices which are poised for further northward spurts impelled by the Russia-Ukraine war.
It is believed that 37% of the world’s mineral deposits are located in Russia and it is the largest supplier of thermal and coking coal to the EU, with volumes at 153 mnt and 32 mnt respectively. The EU, having brought sanctions against Russia, may have to look at other sourcing geographies, a scenario that is pushing up energy prices. Australian premium low vol hard coking coal prices have already surged by $18/t last week.
The most traded iron ore futures May contract closed on China’s Dalian Stock Exchange at $111.82/t and on the Singapore Exchange, the April contract closed at $141.25/t, both up around 3%. Russia and Ukraine jointly control nearly 70 mnt of iron ore exports.
EU mills, shaken by the conflict, are scouting for prompt pellet cargoes from India. Global sentiments have pulled up domestic iron ore fines prices from Odisha by INR 300/t to four-month highs of INR 6,200/t.
Currency conundrum
As per information collected on 28 Feb’22, the Russian currency, ruble, plunged to an all-time low of nearly 30% against the dollar on US sanctions. In morning trade, it hovered at a low of 119 to the dollar. It is expected that Russian mills would take advantage of the weak ruble to increase exports to countries that have not slapped sanctions, at lower prices.
While many feel this may put Indian mills on the backfoot, others say the impact will not be immediate since one, the logistics and other backend work will take time and Indian mills will be comfortably placed till April. Secondly, many importing countries may not want to trade with Russia considering the high level of political and trade-related uncertainty prevailing at present. Thirdly, several mills in Ukraine have been impacted. ArcelorMittal is slowing down production at its major steel plant in Ukraine to a technical minimum and stopping production at its underground mines while Metinvest suspended operations, a trend that will lead to lesser global supply from Ukraine, and help Indian exporters sell more to Europe.
Source:SteelMint
