NEW YORK Bleak conditions in the finished steel market coupled with a weak Indian currency have forced several mills in India to cull production rates and scrap intake as they look to weather losses, according to market participants.
Several scrap-based steel producers in India have lowered utilization rates to 50 percent or under as finished steel cries for demand, sources said.
A weak Indian rupee and reasonably healthy scrap markets in the United States, Britain and some parts of Europe have widened the bid and offer gulf between exporters and importers and resulted in little or absolutely no trade for more than a month.
Although the monsoon season in some parts of India has resulted in a seasonal drop in demand and production, conditions are direr than normal, with production cuts more severe and demand from many smaller producers a fraction of historical levels, sources said.
"With monsoon in full swing and very less demand for finished products, the long-steel products industry is doing really badly, with high input costs and less margins for conversion and dull sales. On average, furnaces are losing up to $30 to $35 per tonne on conversion from scrap to billet at todays scrap prices. But most are still receiving scrap which was purchased in May and June at higher levels, so losses are even greater," one importer in India said.
Several small furnaces have already shut down or halved production, which is a positive development in the longer term, he added.
"This is good for the future of secondary steel manufacturers, as it will wipe out excess capacity in the market and only bigger furnaces will be viable in the coming year."
In northern and western India very little scrap has been booked in the past four weeks, with the only meaningful trades reported out of the Middle East.
For small volumes of containerized scrap, prices out of the Middle East were reported as low as $320 for an 80/20 mix of No. 1 and No. 2 heavy melt scrap, with shredded prices at lows of $333 per tonne.
Other exporters said uncertainty on prices had created wide trading ranges depending on market of origin, destination in India, payment terms and need.
Prices for shred have trekked between $333 and $376 per tonne delivered to India over the past month, with HMS 1&2 (80:20) prices in a range of $320 to $355 per tonne.
Meanwhile, European and U.S. offers for shredded scrap have stayed firm at around $380 per tonne c.f.r. Nhava Sheva, although some shred was reportedly sold out of Britain late last week at $376 per tonne, according to an Indian trader.
In Chennai, the major southern Indian scrap destination, an import of turnings reportedly concluded at $335 per tonne, with No. 1 heavy melt at $360 per tonne.
A few sources said another issue for scrap exporters is the current availability of prompt scrap in the South from traders who are offering unsold scrap from previously booked cargoes and from steel producers who shut down or curtailoed production but had reasonable scrap inventory.
"Ready shredded was sold at $330 per tonne and heavy melt from $310 to $320 depending on quality," a second source said.
"The market here sucks," one U.S. exporter said. "Steel mills are running at 50 percent utilization and have a lot of finish inventory. Thats the reason they are not buying at all. Also, there is a liquidity crunch in the market. Everybody is waiting for the rupee to strengthen, which will not happen in the short run; and even if it does strengthen a bit, not much is going to change for at least the next six months."
A second exporter said weakening conditions had resulted in some contract disputes.
"There is no rationale in the market for what price scrap should be purchased at since demand is weak and theres plenty of abandoned cargo," he said.
U.S. containerized exporters, however, have not suffered any major impact from the lack of Indian demand, as they have found support from consumers in Indonesia, Malaysia and Vietnam, AMM understands.
With most sources in the United States, Europe and India painting a poor picture of what may come, only one U.S. exporter was more optimistic.
"My contacts feel India will need to come back into the market soon no matter what the rupee is doing. Inventories are very low and even though the steel business is not very good over there, they will need to buy some or shut furnaces down. I would say you will see a $10 per tonne rise within the next two weeks," he said.