Indian Wire Rod Industry Faces Margin Pressure, Will It Affect Plant Operations?

The Indian Wire Rod industry is experiencing margin pressure, with the lowest margins recorded in May 2023. Margin drop is attributed to falling prices and increased price competition among suppliers. Some manufacturers are considering cutting down on production in June 2023 if the declining trend in demand and prices continues. Let’s understand why:

Margin Pressures And Current Prices

Mid-sized (secondary) Wire Rod mills are facing significantly reduced margins, with prices around:

• 5.5mm Wire Rods- Rs 46,500-46,800/ton in Durgapur and Raipur on an ex-works basis.

• Billet- Rs 43,300/ton in Durgapur and Raipur on an ex-works basis.

Conversion Rate

With these prices, the conversion from Billets to Wire Rods stood at about Rs 3,200-3,500/ton in Raipur and Durgapur.

The mentioned conversion rate needs to be increased for the Wire Rod produced through the re-heating process as it requires a (minimum) average of about Rs 4,000-4,500/ton for Wire Rod production, as per some plants’ estimates.

Adapting To Market Demand

Due to low margins and increasing selling pressure, a few Wire Rod mills are planning to adjust their supply according to market demand. This includes shutting down the re-heating process and carrying on production through the Continuous Casting process, which has slightly lower input costs compared to the re-heating route.

Production Cuts Impact

As assessed by Ofbusiness, the conversion spread of Wire Rod mills from Billets in March 2023 and April 2023 ranged from Rs 4,300-5,000/ton, depending on trade discounts through the suppliers. If the production cuts are implemented by most mills, the margins of producers are expected to stabilize, providing support in June 2023 after the downward trend witnessed in May 2023.

Will Prices Rebound?

Considering the sluggish global trends and imbalanced supply-demand dynamics in the market, there are limited chances of a sharp price recovery in Wire Rods. Primary mills’ prices are also under pressure. However, with the implementation of secondary mills’ production cuts, producers’ margins are likely to find stability in June 2023.

OFB’s Insight

The Indian Wire Rod industry is grappling with margin pressure as prices continue to decline and competition among suppliers intensifies. With the possibility of production cuts and a shift towards more cost-effective production methods, the industry hopes to stabilize margins.

Read more: Indian TMT Market: May 2023 Performance So Far And Latest Prices

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