Sluggish real estate weighs on Indian rebar prices

Domestic prices of rebar in India have fallen this month, as rising unsold real estate inventories and a lack of funds for new construction projects has reduced construction activity.

The main integrated steel mills reduced domestic prices of 12mm rebar by 500 rupees/t ($7.20/t) since the first week of May to Rs39,000/t in south India and Rs38,500/t in north India. Offers from secondary producers that manufacture rebar by melting scrap and pig iron were even lower at Rs37,500/t. Rebar prices have fallen by Rs1,500-2,000/t since the first week of April.

India's rebar output during April dropped by 16pc from the previous month to 1.35mn t, according to latest steel ministry data. Typical rebar inventories with stockists have now fallen to about to two to three days of consumption from 15-20 days earlier in the year, said a Chennai-based stockist.

Builders and developers are struggling to sell existing inventories of both residential and commercial units and are unable to fund any new projects.

Around 1.27mn houses are currently lying unsold in India's top cities, according to a study by India-focused consultancy Liases Foras. Unsold inventories in 30 Indian cities increased by 8pc on-year to 1.19mn units in the 2018-19 fiscal year ended 31 March.

"An inventory of 8-11 months worth of sales is typically considered efficient and sustainable for the housing market but the current inventory is at 42 months," said Liases Foras managing director Pankaj Kapoor.

Banks and financial institutions are unwilling to fund new real estate projects or offer individual housing loans because of mounting unpaid debts. India's total banking credit to companies and individuals in April slowed by 11.9pc from the previous year.

India's monsoon rains that typically start in late May or June will disrupt construction activity and pressure steel demand. Market participants are also awaiting government policies on shoring up bank finances and stimulating the economy through infrastructure investment when the federal budget is presented to parliament on 5 July.