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Steel prices observe 15% correction globally. How will they pan out in August?

Steel mills across the globe are staring down a desert land of dried-up demand, as the Russia-fuelled war rages on in Ukraine. Prices of gas, which power households and factories across the European Union, have surged 700% till date, as per reports, putting the entire Continent and other parts of the world in an uncomfortable inflationary grip which has also decimated steel demand.

Rebar demand weaker than flats
While global demand for long steel is weak, especially in China, which cracked down on its real estate market post-the Evergrande collapse, the EU is seeing some light at the end of the tunnel for flats. As per some reports, prices of domestic hot rolled coils inched up on 12 July as buyers are slowly eyeing restocking amid widespread output cuts by mills. Demand is not exactly hunky-dory but Northern Europe buyers are expected to resume restocking for September from end-July.

But rebar is not so lucky. Buyers are holding back, waiting for prices to drop further. The market is characterized by wide gaps in bids and offers and muted trade.

In China, rebar dropped below RMB 4,000/t in a long time, on the Shanghai Futures Exchange.

Traditionally, July and August are challenging months from the demand standpoint, putting mills globally on the backfoot all the more in terms of raising prices.

In fact, data maintained with SteelMint reveals that in just a single month, HRC prices globally have fallen by 15-20%. As on 12 July, 2022, China’s HRC FoB prices have lost 20% m-o-m to $618/t and CRCs by 15% to $710/t. Black Sea HRC FoB prices declined 15% to as low as $600/t, while in Japan, these dropped 20% to $650/t FoB. Vietnam imports and India exports both lost ground 15% to $640/t. In rebar, Turkey’s prices on 12 July were down 5% to $710/t.

Factors influencing current global steel scenario

Inflationary pressures in the EU: There is a high risk of recession, especially in the West and governments there are keen to reign in the same through measures such as capping of monetary supply and raising interest rates. But, in a vicious cycle, this will definitely have a fallout on demand, globally.

The euro’s value has been eroding for months and at the time of writing this story, it was equal to the US currency. A year back, it was at 1.20 to the dollar against 1.13 more recently.

Two factors are weakening the euro. Rising EU inflation and the US’ comparative insulation from the war. Inflation in the EU has averaged 8.6% in June on the back of spiralling energy prices. On the other hand, with the US somewhat immune to the volatility in oil and gas markets given its own oil reserves and alternate energy sources, the dollar has fared better. The US Federal Reserve has also been raising interest rates for months, making dollar denominated investments safer at present, allowing it to appreciate.

Meanwhile, the European Central Bank is in a catch-22 situation. The soaring inflation merits increase in interest rates but may just dry up demand in an already beleaguered economy. Being a major consuming region, if demand from the Continent falls, there will be far-reaching ramifications. Possibly, after Ukraine, the EU has been hit the most, economically, by the war.

Energy crisis looming in Q4? There are fears of a probable energy crisis in Q4. In fact, as per reports, demand has rebounded in Europe in the face of such fears. Among the goods that cannot be imported from Russia into the EU include crude oil and refined petro goods, coal and other solid fossil fuels, iron and steel, amongst others. It may be noted that trade in some commodities like coal will come to a standstill from 10 August, 2022 while Russia’s Gazprom has cut off 60% of gas supply from its Nord Stream pipeline. Obviously, Europe is heavily dependent on Russian supplies and the actual impact will be felt from Q4 onwards although the region is already suffering from energy shortage and power plants are running helter-skelter to revive coal-fired utilities.

The China factor: China, the largest producer and consumer of steel, is labouring under its own challenges. Covid, falling demand and prices and squeezed margins have the mills fighting with their back to the wall. The off-season is also not supportive of demand or prices. However, the silver lining is the policy measures that can kickstart an infrastructure boom in the second half which can translate into demand revival.

Outlook
Most mills globally are sitting on limited inventory because of the widespread production cuts on the back of the spiralling energy crisis and lack of demand.

However, by end-August or first week of September, the inventory could get depleted, a scenario that will give elbow room for prices to head up globally.

In addition, Russian mills are heard to have reduced their export volumes due to their very strong local currency. This could offer solace to steel exporting countries.

So, have prices bottomed out as of now?

What factors will drive steel prices in H2 2022?

SteelMint Events is organising India Steel Conference with SUFI at Bombay Stock Exchange (BSE) Mumbai, on 25th Aug’22.

July 15, 2022
India’s coal production set to breach 900 mnt-mark in FY’23 – Coal Minister

The Minister for Coal, Mines & Parliamentary Affairs, Pralhad Joshi, said on Tuesday that India’s coal production is set to cross the 900 million tonnes (mnt)-mark in financial year (FY)’23, as the country ramps up efforts to meet a phenomenal surge in power demand.

Speaking at the 6th National Conclave on Mines and Minerals, the minister stated: “Coal production in FY’22 was around 777 mnt. In the current fiscal we are trying to increase production to 900-920 mnt. Challenges are multifold but the government’s affirmative policies have boosted coal output from around 570 mnt in 2014-2015 to over 760 mnt in 2021.”

Joshi underlined the fact that international geopolitical disruptions have fuelled energy prices to historic highs and supply and price of natural gas has been gravely affected due to the ongoing turmoil in Russia.

This, coupled with sanctions on Russian exports, are driving energy prices higher at a time when domestic coal supplies are falling short of satisfying the exponential growth in industrial and domestic electricity demand.

Production outlook

The minister, however, had earlier pointed out that state-owned Coal India Ltd. (CIL) has the potential to jack up output to around 760-780 mnt, while the captive power producers could increase production to around 120-130 mnt, with additional production expected from the mines auctioned under the commercial auctions – which should be around 5 mnt.

The policy enablers have mainly been the amendments that the government brought about as regards revising the MMDR Act, with respect to erasing the end-user distinction for allocation of blocks, and also enabling 50% of sales of minerals after satisfying end use requirements and relaxing exploration norms.

Further relaxations have been mooted in the form of allocating mines to the private sector, especially the coking coal blocks. Measures to enhance production are in place, the minister said, with the abandoned coal blocks being sought to be operationalised.

Production climb 32% in Q1

India’s coal production increased by 32% y-o-y to 205.56 mnt in the first quarter of FY’23 (Apr-Jun’22) against 155.85 mnt in the corresponding period of FY’22.

CIL produced 159.75 mnt of coal during Q1FY’23, thereby registering a steep rise of 29% y-o-y.

Notably, this is the highest output recorded by the company in the first quarter of a fiscal – a period during which it usually tends to lower production in view of surplus inventory available at mines.

However, in order to keep pace with soaring power demand, the company has recorded production in excess of 50 mnt in each of the first three months of FY’23. In contrast, the production mark of 50 mnt was first touched in November of last fiscal.

In addition, a substantial growth was witnessed from the captive and commercial mines that have been allocated. Overall production from these blocks jumped 79% y-o-y to 27.7 mnt in Q1FY’23, supported by operationalisation of new mines.

At present, a total of 36 mines are operational. The Ministry of Coal has informed that 12 additional mines will start production this fiscal year.

July 14, 2022
India: Karnataka iron ore sales drop to over 2-year low in June. What to expect next?

Iron ore sales in Karnataka dropped to their lowest level in over two years to a little under 1 million tonne (mnt) in June 2022 due largely to the confusion surrounding sales and dispatches following the Supreme Court’s verdict in late May that lifted curbs on exports as well as restrictions on sales of iron ore that had been in place for over a decade.

Sales drop sharply

SteelMint provisional data reveal that sales plummeted to just under 1 mnt in June – a drop of over 20% from 1.25 mnt in May. Compared to April, moreover, sales at auctions edged lower by nearly 50%.

State-controlled NMDC was the leading seller at auctions in June with a share of roughly 75% of the total volumes sold, followed by Vedanta at around 12% and the Karnataka State Mineral Corporation Ltd. (KSMCL) at 11%.

It needs to be mentioned that NMDC’s sales from the Donimalai mine comprised around 55% of total sales in Karnataka auctions in May, while the Kumaraswamy mine accounted for roughly 20% of total sales.

While a majority of miners chose the tried-and-tested MSTC platform for auctions, a few others resorted to direct contract/spot sales of iron ore. However, the volume of direct sales was assessed at roughly less than 1/10th of sales via auctions.

JSW Steel was the leading buyer accounting for a lion’s share of 55% of total sales in e-auctions, followed by BMM Ispat at 7%. Kalyani Steel Ltd. and Mukand Ltd. had a share of 5% each in total sales.

Uncertainty grips market

The Supreme Court on 20 May lifted curbs on exports of iron ore from Karnataka and eased all restrictions on sales from the districts of Bellary, Chitradurga and Tumkur where mining activity had been prohibited following environmental violations in 2011.

Setting aside its 2011 order of direct disposal of the accumulated iron ore through the process of e-auction conducted by the Central Enforcing Agency (CEC)-appointed Monitoring Committee, the apex court ruled that direct contract sales and/or spot sales would henceforth be allowed.

However, despite the court order, and prior to the issuance of the interim guidelines by the state government, market participants were unsure of the modalities of iron ore evacuation and dispatch, which resulted in a deadlock situation where the mineral for which confirmed orders had been received and advance payments made was not allowed to be lifted for want of requisite permission from the state government.

SteelMint reported that Vedanta, NMDC and KSMCL had conducted auctions via MSTC post the SC order, while a few private miners had commenced direct sales. However, volumes remained low as well as buying interest in auctions – partly due to the prevailing gloomy steel outlook and, in some measure, because of the relatively lower grades being offered.

The apex court had lifted the five-year-old ceiling on production from 30 mnt to 35 mnt for A and B category mines in 2018. So, there is still a cap on total production in the state, although subject to judicial review.

Amidst iron ore shortage, pellet prices in Bellary remain supported compared to other regions in central and eastern India. Iron ore pellet (Fe 63%) prices in Bellary moved up to INR 9,800/t exw as assessed on 08 July as against INR 9,400/t on 5 July, as per SteelMint assessment. Prices have hit over a month-high since end-May’22.

Outlook

The Karnataka government has issued guidelines that allow miners now both to sell iron ore through direct contracts/spot sales as well as e-commerce platforms such as MSTC. Further guidelines on disposal of old stocks mined prior to 2011 and stocks at expired leases and cancelled stockyards will be issued shortly.

Therefore, clarity regarding dispatches of old stocks as well as freshly-mined ore is slowly emerging that is likely to lift the uncertainty that affected production and sales in Karnataka. Also, amidst rising pellet prices, interest in iron ore auctions has seen a gradual recovery of late.

Therefore, SteelMint expects sales in the state to witness steady growth in July.

Join us in our event, to know more about Karnataka iron ore production & demand outlook

SteelMint Events will be hosting the 5th Indian Iron Ore & Pellet Summit on 3-4 August, 2022 at The Lalit, New Delhi. The conference will discuss key issues being faced by the iron ore and pellets industry in India. The focus will be on market dynamics, policy-related changes, growth challenges and enablers, sustainability and decarbonisation goals, the way forward and many more talk points.

July 9, 2022
India: Sponge iron producers eye alternative Mozambican coal amid tight domestic supply

At a time when sponge iron manufacturers in India continue to deal with domestic coal shortage, quality issues regarding imported coal, and rampant volatility in prices, a new alternative is likely to emerge in the form of coal shipments from Mozambique.

Mozambican coal is heard to be of good quality and cost-competitive against South African coal.

One of India’s leading steel manufacturers, Jindal Steel and Power Ltd. (JSPL) has taken the initiative to experiment with Mozambican VT 1 grade coal (from Vulcan Energy formerly Vale Mozambique), which has shown positive results in sponge iron kilns of 500 TPD (tonnes per day), 350 TPD and 100 TPD capacities, wherein no mixing or blending is required.

The coal that has already been used has resulted in average consumption of 800 kg/tonne (t) of sponge iron.

VT 1 grade specifications:

The advantages of VT 1 grade over South African RB2 (5500 kcal/kg NAR) used for sponge-making are as under:

The trial data for 100% usage of VT 1 grade coal in different designs of sponge iron kilns are as follows:

According to market participants, Mozambican coal is likely to gain more significance in the domestic sponge iron industry as Europe’s strong demand continues to keep South African coal prices high.

Coal sourced from other origins such as Australia and Russia, however, are unlikely to be utilised as a full substitute for South African or Mozambican stocks.

JSPL has proposed to maintain approximately 300,000 t of Mozambican coal at key ports around the country including Paradeep, Dhamra, Haldia, Kandla, Gandhi Dham, Raigarh, Angul and Ranchi from where sponge iron manufacturers can buy the coal in their local currency.

This would mitigate the risk of opening LCs, handling bulk imports, inventory management, etc. The proposal has been suggested till the time coal supplies from domestic miner Coal India normalises.

India’s coal imports from Mozambique

Major steel and cement companies are the biggest buyers of coal from Mozambique, with the share of thermal coal standing at around 2% and that of coking coal at 1% of India’s total imports in June.

As per data maintained with CoalMint, the country’s total thermal coal imports from Mozambique was 2 mnt during the first six months of the year, up 109% y-o-y, while coking coal imports stood at 1.3 mnt, up 40% y-o-y.

To know more about the changing trend of coal usage in the domestic sponge iron industry join us at India Coal Outlook Conference. CoalMint will be hosting the India Coal Outlook Conference on 3-4 August 2022 at The Lalit, New Delhi, to discuss the key issues pertaining to domestic coal production and supply, the government’s objective of controlling imports and domestic supply gap affecting many industries, the need to increase the purchasing power of Indian steel companies in the volatile global coking coal market as well as issues related to decarbonization of the coal value chain.

July 9, 2022
Indian iron ore and pellet export shipments fall 90% in June
- Iron ore and pellet export shipments fall 90% in June,hits 7-month low
- With export duties in place, shipments to remain low
- Iron ore and pellet production to get impacted
India’s exports of iron ore and pellets have plummeted to the lowest level in seven months, SteelMint data reveals. Export shipments dropped to just a little over 230,000 tonnes (t) in June 2022 – a new low since November last year when total exports stood at around 250,000 t.

While China’s steel production curbs in the second half of 2021 had cast a shadow over India’s export prospects, the government’s overnight imposition of stringent export duties on steel, iron ore and pellets towards the end of May 2022 adversely impacted export volumes, SteelMint notes.

Out of total exports in June, about 146,000 t comprised iron ore, while around 84,000 t of pellets were shipped out by Indian mills during the month. Strikingly, iron ore exports declined by over 91%, month-on-month, in June from around 1.64 million tonnes (mnt) in May, while pellets exports fell sharply by 92% on the month from 1.05 mnt in the preceding month.

Reckoned on a year-on-year basis, India’s combined exports of iron ore and pellets fell by over 93% in June from over 3.4 mnt in June 2021.

While Indian suppliers shipped around 53,000 t iron ore fines to China in June, volumes fell sharply from over 1.5 mnt in both May and April. Total exports to China fell over 97% m-o-m, data shows. Indonesia was the leading recipient of India ore in June at over 56,000 t even as Malaysia bought around 36,000 t.

Oman and Malaysia were the only importers of pellets from India in June at around 51,000 t and 33,000 t, respectively.

State-owned KIOCL and eastern India-based steel producer BRPL were the sole exporters of pellets in June at 51,000 t and 33,000 t, respectively, with the other leading suppliers such as AM/NS India, Godawari Power & Ispat and Rashmi Metaliks all recording zero shipments.

Why exports dropped so drastically?
- Govt imposes export duty: In the third week of May, the government imposed a 50% export duty on iron ore of all grades from the previous 30% levied only on ore of grade Fe58% and above. At the same time, it fixed a steep 45% duty on exports of pellets from the country. These trade policy measures directly hit export volumes. Steep duties are meant to discourage exports and ensure enough raw material availability for the domestic producers of iron and steel.
- Decline in global prices: Iron ore prices globally have slumped rapidly over the last 15 days or so due to the lingering COVID-19 disruption and lockdowns in China and low steel demand. By some estimates, China may cut steel production in 2022 from 2021 levels; demand for steel from the downstream sectors remains weak, while producers’ margins continue to shrink. Property investments and home sales are down y-o-y, while steel inventories are piling. Benchmark Fe62% Australian iron ore has dropped to $110/t CNF China, as per SteelMint assessment on 5 July – down 25% from around $147/the month back. Declining prices are naturally discouraging exports.
- Karnataka producers await clarity: The Supreme Court on 20 May lifted curbs on exports of iron ore from Karnataka and eased all restrictions on sales from the districts of Bellary, Chitradurga and Tumkur where mining activity had been prohibited in 2011. Despite the court order, and prior to the issuance of the interim guidelines by the state government, market participants were unsure of the modalities of iron ore evacuation and dispatch, which resulted in a deadlock situation where the mineral for which confirmed orders had been received and advance payments made was not allowed to be lifted for want of requisite permission from the state government. Lack of clarity on the operational part of the court order affected production and sales. Karnataka miners, as per the state government’s interim guidelines, can now both sell iron ore through direct contracts/spot sales as well as e-commerce platforms such as MSTC. However, due to cap on production and with iron ore consumption being almost equal to production (of around 40 mnt) in the state, prospects for exports from Karnataka are slim.
Outlook

India exported over 15 mnt of iron ore and more than 11 mnt of pellets in FY’22 – over 26 mnt combined. SteelMint expects exports to fall this year, although industry insiders believe that the export duties are a temporary phenomenon and will be subsequently waived once inflation subsides.

Although domestic mills are seeking to diversify supply destinations, at current tariff rates, and given subdued global prices, exports are plainly unviable.

Indian Iron ore and Pellet Summit, 3-4 Aug’22, New Delhi

Join us in our event, to know more about Indian iron ore production & demand outlook

SteelMint Events will be hosting the 5th Indian Iron Ore & Pellet Summit on 3-4 August, 2022 at The Lalit, New Delhi. The conference will discuss key issues being faced by the iron ore and pellets industry in India. The focus will be on market dynamics, policy-related changes, growth challenges and enablers, sustainability and decarbonisation goals, the way forward and many more talk points.
July 7, 2022