The market scenario of input materials driving long product market crazy in India over last 20 days is keeping market players including steel makers, re rollers, traders and consumers on tender hooks. We have talked to several players including steel makers, rebar makers, dealers & traders and end users, but no one could put his finger to the root cause of this surge and as such everyone is in confused state riddled with huge uncertainties.
No one is able list down real factors driving this surge of more than 15% in last 20 days. In fact, despite the rational of surge in iron ore prices in Indian domestic market and higher offers of imported scrap, the numbers do not add up.
Barometer of long product market in India, the Indian Long Product Price Index ILPPI has continued to surge on December 23rd 2009 with posting hike of 157 points or 2.3% as compared to December 22nd 2009
On the other hand, Indian iron ore mess, although has pushed up iron ore prices by more than 20%, but in real terms, considering 1.6 tonnes ore feed for producing 1 tonne of steel, numbers do not add up justify a such quantum jump.
This is much less than the actual hikes of more than a minimum of INR 3000 per tonne witnessed in sponge iron, pencil, ingot and rebars.
Higher import offers of scrap also do not support surge in long product prices as at best prices of HMS have moved from say USD 290 per tonne to USD 330 per tonne or about just USD 40 or INR 2000 per tonne.
Than, what is really driving this surge. Is it pure speculation or restocking or a combination of both.
We understand that pencil ingot prices after closing at INR 28,700 per tonne on Tuesday evening surged to INR 29,400 per tonne on Wednesday opening. But they dipped to INR 28,400 per tonne in mid day trading but recovered to INR 28,700 per tonne on Wednesday closing. This is reminiscent of SENSEX movement, which is normally driven by speculators to a great extant rather than fundamentals.
On the other hand, we have learnt that not only end users are in market to buy their needs of today but also of tomorrow to avoid higher prices in future resulting in inflated demand for stocking amid this confusion. The similar mind set of is exhibited by dealers who are increasing their inventory. As per ground reports, a dealer who used to keep say 1 truck load of rebars in stock is carrying 5 to 10 truck loads today.
In other words, this clearly reflects a hyped up market for long products in India, in which hoarding is happening rather than increase in real demand.
USD 450 per tonne to USD 470 per tonne FOB Black Sea levels were reported last week and even if we go with the higher band, considering freight of USD 50 per tonne, it works out to USD 520 per tonne CFR India or say just about INR 26,200 per tonne plus ED and VAT on like to like basis. Or shall we say that import levels are not supporting the surge.
Going forward, the likely scenarios are one of the following
1. The surge continues
2. Prices settle at these levels
3. Bubble bursts
Although it will be presumptuous to make predictions, writing on the wall is evident that rebar prices in India at current levels may be transitory. We would like to exercise a word of caution that buying at such levels could prove detrimental if the market perilously foisted on brittle demand crashes. However a remote possibility of ground zero demand from the reality sector picking up to avoid cost escalation cannot be ruled out. The reality is that swing from a mercurial rise to an equally catastrophic debacle is typical of sentiment driven demand and wisdom demands hedging rather than the plunge.