November 2009 seems to be heralding toughest phase for long product prices reminiscent of the peak recession in October 2008.
The movement of Indian Long Product Price Index ILPPI clearly reflects that the prices of long products in India are on the downhill since October 14th 2009 and have reduced by more than 8%. Despite the downward sentiments in last 2 months, Indian long product players have exhibited positive sentiments till October end but now they have succumbed to the market realities.
It seems that Indian long product market, devoid of demand, was backed by the pre Diwali optimism, culminating in accumulation of stocks in anticipation of demand ignition post festivals, but to the utter chagrin of market players, mirage vanished leaving aspirations in a limbo.
Oblivious to the realities in desperation sellers opted to keep their hopes pinned on a belated revival. However the inevitable slide soon commenced admonishing residual expectation with contempt. The prices of long products which started sliding in mid September have maintained its momentum.
| Class | 14-Sep | 10-Nov | Change | % |
| ILPPI | 6374 | 5839 | -535 | -8.4% |
ILPPI - Indian Long Product Price Index
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Market players attribute following factors for deepening pessimism in long products market
1. Liquidity crunch is playing pivotal role in declining demand for long products. On one side small and medium projects in reality sector have been gasping for credit, whereas on the hindsight major projects, running on pre recession sanctions are on the verge of completion.
2. Despite all the hype created by the government about stimulus for the construction industry, it still reels under the recessionary pandemic scuttling new projects as consumer confidence wanes.
Indian steel majors had a fairy run till mid October, as the latent demand from mega projects kept the inventories within manageable levels, keeping the prices afloat. With the progressive exhaustion of demand and inadequate new demand generation from the secondary sector prices crumbled under its own weight with mounting inventory.
The steel majors resorted to price cuts in an attempt to arrest the damage narrowing the price gap with secondary manufacturers. Imperiled by such daunting postures the secondary sector readjusted its pricing as a survival tactics triggering price war.
Rebars from secondary producers are being sold below INR 28,000 per tonne, inclusive of ED and VAT by secondary players in NCR Region. Further price cuts cannot be written off as they have to offload inventory before it starts cannibalizing residual margins.
The low offtake of pencil ingots is driving rebar prices down and it is reported that at one of the most decisive location viz., “Raipur” price has already plummeted to INR 19,000 per tonne plus taxes.
Experts opine that a dip of INR 500 per tonne in next 2-3 days is inevitable with further reductions y the weekend or early next week taking it below INR 18,000 per tonne.
Remarkably the lowest level of pencil ingot price in the last 2 years was reported during the last week of October 2008 and June July 2009 touching about INR 18,000 per tonne plus taxes at Raipur.
| Date | Price |
| 01-Jul | 34522 |
| 24-Oct | 18068 |
| 30-Mar | 19899 |
| 15-Jun | 19810 |
| 01-Jul | 19099 |
| 30-Jul | 17944 |
| 30-Jul | 17944 |
| 10-Nov | 19032 |
In per tonne
Exclusive of ED and VAT
If pencil ingot prices go down by further INR 1,000 per tonne in coming days, we shall witness lowest point after the boom setting new record and bursting the bubble of “All is well “ perpetuated by the state and steel manufacturers.
On the other hand, prices of domestic iron ore, backed by the export demand, and have climbed by 24% in last one month squeezing the margins of secondary producers. Shedding of flab is inevitable as some small players will be eased out bringing production and cost rationalization leading to demand supply match and recovery next month.
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