Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

The spread between imported ferrous scrap and billet in Chennai decreased by Rs1,096/mt to Rs8,737/mt in August from Rs9,833/mt in the month prior amid muted demand for finished steel in the domestic market, coupled with an increase in raw material prices. Though semi-finished and finished steel prices were also on a rise in the period, its pace of increase was slower than that of raw material prices.

Billet prices increased by 5pc or Rs1,391/mt in less than a month as manufacturers looked to pass on the rise in input cost to buyers. But ferrous scrap prices rose by Rs2,487/mt or 13pcThis tightened the spread between imported ferrous scrap and billet to Rs8,737/mt on August 14 from Rs9,833/mt at the end of July. 


A lack of government impetus to push steel consumption affected finished steel trades. On the other hand, prices for ferrous scrap in Chennai , where most mills produce secondary steel, increased by Rs1400/mt due to shortage of domestic scrap. 

Aiding this rise in scrap prices was also a strong global ferrous scrap market on the back of a progressive increase in offers for Turkish buyers. Mills in Turkey too matched these offer prices and booked bulk shipments in August. The index for HMS 1&2 (80:20) has increased by $18.75/mt to $285/mt cfr Turkey on Thursday from around $266.25/mt cfr in the prior month. 


Sponge prices up amid high input cost

Iron ore prices were largely bullish driven by strong demand from China along with domestic supply crunch. China imported 112.7mn mt of iron ore in July, only 10mn mt short of their record high of around 122mn mt in the prior-year period. In Jan-July, iron ore imports rose by 11. 8pc. 

In India, the wet season hit iron ore supply which led to miners increasing their prices. As a result, sponge iron prices have increased by Rs1,140/mt in 15 days. 

Mills pin hope on infra boost

In July, due to subdued demand in the domestic market, major manufacturers resorted to exporting billets for business continuity. Secondary steelmakers, however, were left with a piled-up inventory. They are now pinning their hopes on a demand boost from infrastructure projects September onwards. 


Most mills in Chennai were unable to halt production and thus paid higher wages to laborers amid COVID-19 fears. Adding to their woes was a rise in costs like logistics and electricity. They are now looking to lower their production costs to avoid a margin squeeze. 

With the prices in Turkey losing their steam, these producers plan to adopt a wait-and-watch approach until August-end for a clear price direction. Amid current weak market fundamentals, only an economic stimulus and infra push can elevate the pressure on mills. 


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