India: Merchant pig iron prices drop 10% y-o-y in FY23

India: Merchant pig iron prices drop 10% y-o-y in FY23

Merchant pig iron prices in India dropped around 10% y-o-y in financial year 2022-2023 (FY23) compared with FY22. The average price of steel grade pig iron in eastern India's Durgapur market - considered the benchmark in price assessments - sunk to INR 43,023/t exw in FY23 from INR 47,553 exw in FY22, as per SteelMint data.

The decline can be attributed to a variety of factors, most prominent among which were the noticeable increase in domestic supplies as well as a negative correction in coal and coke prices. Moreover, steel demand and prices were dampened during the 6-month period from May to end-November last year when an export duty of 15% had been imposed on finished steel as well as pig iron.

Domestic production of merchant pig iron stood at 5.85 million tonnes (mnt) in FY23. Production increased by 2% y-o-y compared to 5.76 mnt recorded in FY22.

India's hot metal production stood at 80.87 mnt in FY23, up by 3.5% y-o-y compared to 78.12 mnt in FY22. The rise in hot metal production was in line with an increase in steel production.

Why prices slumped?

Ample supplies pressure prices: The country's merchant pig iron production rose by 2% y-o-y. Domestic pig iron supplies improved with the start of production by major steel pipe producer Welspun and long steel producer Neelachal Ispat Nigam Limited (NINL)after acquisition by Tata Steel. This added to domestic pig iron capacity. JSW-owned Bhushan Steel and Power Limited (BSPL) had increased pig iron supplies in the domestic market through auctions. It is estimated that production has increased by around 90,000-100,000 t per month. So, prices remained under pressure as supplies surged. While PSU steelmaker SAIL reduced volumes offered at auctions sharply in FY23, buying interest remained weak.

Coking coal, coke prices decrease: Global premium hard coking coal prices have corrected sharply from over $650/t FOB Australia in March-April 2022 to around $285/t FOB. With the resumption in supplies post weather-related disruptions from Australia, supplies have increased in the seaborne market and prices have corrected as a result. This has reduced the cost of production of pig iron and impacted prices. Coking coal prices have decreased by 25% since February when prices stood at $380/t CFR India. Similarly, domestic met coke prices have declined by 6% from INR 44,000/t exw eastern India in end-February to around INR 41,500/t.

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Steel prices drop, scrap imports up: Domestic steel prices weakened in FY23. Standard Fe 500 steel rebar produced via the induction furnace route declined around 15% compared with the beginning of last fiscal. HRC (2.5 mm) prices have fallen by around 14% compared with May 2022. Steel prices inched up from November-December last year, although still down y-o-y. DRI and billet prices have fallen. However, scrap prices were a rare exception, rising around 4% m-o-m in March on global cues. So, pig iron prices lacked support from the steel market. India's scrap imports, too, rose sharply by around 100% y-o-y to over 8 mnt in FY23. This ensured enough availability of substitute raw materials which dampened pig iron prices

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Pressure from imports, exports fall: Although marginal in terms of volumes, India's imports of pig iron from the CIS edged up in the just-concluded fiscal due to viability compared with domestic prices. This naturally kept domestic prices under pressure. Further, subdued steel demand in neighbouring countries due to high inflation and liquidity crunch impacted pig iron exports, which dropped around 50% on the year in FY23. The 15% export tariff on pig iron weighed on exports. Therefore, domestic prices lacked support. After the Russia-Ukraine war erupted there was a pig iron supply crunch in the global market due to sanctions on Russia, the largest pig iron exporter. Indian mills seized this opportunity and started selling in the global market. However, after the government announced export duty, volumes started falling and so did domestic prices. Provisional figures show that India exported 550,000 t of pig iron in FY23, down from 1.247 mnt in FY22.

Outlook

With export enquiries increasing, especially from the US due to tightening of sanctions on Russia, pig iron prices have received some support, increasing marginally after falling 5% m-o-m in March. However, the steel market in China has not exactly taken off after the CNY holidays due largely to its debt-ridden property market. In addition, monetary policy tightening is also impacting steel demand and prices worldwide. This is not exactly positive for domestic steel prices and, therefore, pig iron.

Moreover, coking coal and coke prices are sliding on abundant supplies amid stagnant demand. Projections are that coking coal prices are likely to fall below $240/t FOB in the near-term. This, too, poses a downward risk for pig iron prices. However, lack of liquidity and weak demand for finished steel during the fiscal year-end may give way to a general recovery in steel demand in April, which may be positive for prices.

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