Cat was finally out of the bag on the 3rd day in New Year. Even though not coming as a surprise the muddled pattern gave indication of inherent diffidence.
As reported earlier by us on January 1st, it is learnt that HRC price is hike by INR 500 per tonne to INR 750 per tonne by 2 prominent producers, although some others have opted for rollover so far.
Flat product market in India has borne bulk of the flak over the past 2 years owing to poor demand and influx of quality material from Japan and Korea under FTA. Even though Indian mills have daringly tried to break the impasse by hiking prices intermittently it has been more of parity capitalization exercise with depreciating INR rather than strengthening of core fundamentals.
However the confidence at touch more in long product with mills flexing with a hike of INR 1000 per tonne to INR 1500 per tonne across the regions for TMT bar. Some mills opted for the back door by brushing aside the rebates to increase price.
Long product market has been a relatively mobile with undulations depending on seasonality and market sentiment. Q3 and Q4 is traditionally period of increased construction and consumption. Q4 sees the race for completion of projects culminating in increased activity. Apart from these factors the long product market is dependent on imported scrap as well. Weakening rupee and seasonal shortage of scrap in Europe and USA has bloated the cost. Power tariff in most locations in India has been hiked substantially during the past 6 months. Non availability of power culminating in poor capacity utilization has impacted the secondary sector in more than one ways. Iron ore shortage is unrelenting and more so with current hike in international iron ore price NMDC is mulling hike thereby hitting the bottom line secondary sector and majors without captive mines.
Uncanny aggression by primary mills having captive raw material sources is understandable with an eye on taking away the advantage of secondary sector. Even though the gap between secondary and primary price of TMT had narrowed to INR 3500 per tonne to INR 4000 per tonne from typical INR 5000 per tonne to INR 6000 per tonne secondary sector has been coerced into hiking price by INR 1000 per tonne in some locations to adjust the cost push. Primary mills also having hiked the price it becomes a zero sum game but for the anticipated pickup in demand in Q4 backdoor rebate by the latter to push volumes.
January to March quarter is warming up to be evenly pitched battle between primary and secondary producers. Certainly credit easing by RBI during this period would catalyze an otherwise monotonous humdrum.
