Mumbai: With the government asking the industry to contain steel prices as a way to counter inflation, and two state-owned companies that account for 40% of domestic capacity likely to play along for now, private steel companies are coming under pressure to hold prices.

Government-owned Steel Authority of India Ltd (SAIL) and Rashtriya Ispat Nigam Ltd (RINL), will “likely yield to the Prime Minister’s request and might not hike prices for the next three months,” said a senior steel ministry official who didn’t want to be named.

A spokesperson for SAIL, in which the government holds a 85.82% stake, declined to comment.

Steel prices are likely to be firmed up in coming days.

Last month, the industry had raised prices by about Rs1,000 and Rs1,200 a tonne, but was compelled to roll it back by Rs500 because of the government’s demand. Global steel prices have touched a high of $650 (Rs29,500), whereas, in the domestic market, the price is steel is at $600 a tonne.

SAIL and RINL produce 13.4mt and 3.4mt of steel respectively, out of the total domestic capacity of 40 million tonnes.

“Even though private players decide on pricing of their products independently, SAIL’s pricing strategy does impact the rest of the industry,” said an official with a private steel producer who didn’t want to be named.

“Basically, the industry has two options. One is to increase prices. If the government does not give us the flexibility to do that, the only option we have is to increase exports,” said a senior official of a Mumbai- based steel company.

The industry has been pushing for a price hike due to the steep difference between domestic and international steel prices.

“Globally, steel prices are going up mainly due to demand, stocking and increase in raw-material prices. This will directly impact domestic prices, so there is an expectation in the market that there could be an increase in the steel prices,” says Ramesh Iyer, assistant vice-president of National Commodities Derivative Exchange.

Manufacturers concede that unlike the cement industry, the steel industry is not facing shortage of supply.

“We decide domestic prices in comparison with global prices. Even if we don’t hike domestic prices, we will increase our export prices which will give us better realization,” said an official with a Mumbai-based steel-making firm.