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

Indian secondary steel mills who produce steel through electric arc furnaces (EAFs) or induction furnaces (IFs) are struggling with margin compression since the beginning of June amid weak demand for finished steel in the domestic market. The spread between billet and rebar has contracted by Rs3,500-4,000/mt in June.


Unlike primary mills, secondary mills do not have access to overseas markets and depend mostly on domestic buyers. Though, domestic demand has revived slowly from mid-May when the markets reopened after the COVID-19 lockdown eased. Consumption is yet to reach pre-COVID levels.


Another reason why secondary mills were facing margin pressure is the fact that rebar prices have dropped more than billet prices both in Mumbai and Raipur market in June. In Mumbai, rebar prices dropped by Rs2,600/mt while billet prices fell by Rs2,100/mt ($27.77/mt) in June. Similarly, in Raipur, rebar prices dropped by almost double Rs4,200/mt against around Rs2,000/mt($26.5/mt) dip in billet prices.


Mumbai spread 

The spread between billet and rebar in Mumbai decreased to around Rs4,000/mt ($52.91/mt) on June 30 from around Rs4,600/mt in early June. Similarly, the spread between scrap and rebar in Mumbai has decreased to around Rs11,400/mt from Rs13,000/mt in the same period. Generally, the spread between billet to rebar is around Rs5,000-6,000/mt and spread between scrap to rebar is around Rs11,000-12,000/mt. 


Meanwhile, most of the secondary mills in Mumbai preferred to sell billets instead of rebar as demand from the construction sector showed no signs of improvement, especially in the Mumbai metropolitan region (MMR). These mills predominately sold billets to the nearby regions such as Jalna and Pune.  


Mills operated at around 40-50pc capacity in-line with weak demand and labour shortage. Steel mills are hopeful that labourers would return to work from July onwards, but production ramp-up will depend more on market conditions.


Raipur spread 

The spread between billet and rebar in Raipur decreased to around Rs3,500/mt on June 30 from Rs5,900/mt in early June. Similarly, the spread between pellet sponge and rebar has also decreased to around Rs15,500/mt from Rs18,500/mt in the same period.


Most mills in Central India gradually increased their capacity utilization to 60-70pc post the easing of lockdown restriction on an expectation of a rise in demand from the construction and infra sector. But higher inventory and low demand failed to support rebar prices.


Major steel producers have reported better steel consumption in rural markets. Market participants hope that increased spending by the government on the rural infrastructure, oil and gas sectors and railways will spur steel demand in the domestic market.


Spread (in Rs/mt)MumbaiRaipur
June 1, 2020June 30, 2020June 1, 2020June 30, 2020
Scrap-billet                    8,700                      7,500 
Billet-rebar                    4,600                       4,000                 5,900            3,500 
Scrap-rebar                  13,350                      11,450 
Pellet sponge-billet              12,500           12,000 
Pellet sponge-rebar              18,500           15,500 

($1= Rs75.6)



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