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Steel prices to surge 50% in 2010-11: Crisil

Steel prices to surge 50% in 2010-11: Crisil
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First Published: Thu, Jun 03 2010. 05 52 PM IST
Updated: Thu, Jun 03 2010. 05 52 PM IST
Mumbai: Global steel prices may jump by half in 2010-11 as new capacity additions get delayed while raw material costs surge, head of research at Crisil, a unit of Standard & Poors, said on Thursday.
Steel prices may rise to $700 per tonne in 2010-11 and to about $800 in FY12 compared with about $475 in 2009-10, Manoj Mohta of the ratings credit agency told Reuters in an interview.
“We are seeing a bulid-up in prices because of the push up in raw material prices and demand from India and China. And also as demand outpaces supply,” he said.
Mohta expects new supplies of about 35 million tonnes in India by 2012 and most of that will be from expansion of older mills than new projects as the latter are likely to get tangled in land acquisitions, mining licenses and fund raising processes.
According to India’s five year plan, total steel-making capacity should touch 120 million tonnes by 2012 from about 65 million tonnes now, but Mohta does not expect the target to be met as several big projects are on hold.
Global steel producers have long coveted -- and been frustrated in -- Asia’s third-largest economy.
ArcelorMittal and South Korea’s POSCO, which plan to spend a combined $24 billion to build capacity in eastern India, have yet to secure land more than two years after announcing their plans.
Both have faced delays in allocation of mining leases and protests from local farmers against land acquisitions.
“Based on our assessment of their (Indian players) balance sheet strength and how much of linkages they have got, we see a capacity expansion of close to 100 million tonnes and we expect most to come in from brownfield expansion,” he said.
Mohta expects only a small portion of the 30-35 million tonnes additional capacity to come in from greenfield projects.
Shakeout in sight
With increasing pressure on raw material costs, small and marginal players may not be able to survive, paving way for buyouts by larger producers, Mohta said.
Media reports have suggested smaller players such as Brahmani Steel and Rathi Steel Bars are acquisition targets of a major Indian producer with facilities in Karnataka, while Bhushan Steel and Monnet Ispat are in the race to acquire a controlling stake in Orissa Sponge Iron & Steel.
“From smaller players point of view, their margins will be under pressure. Their profitability might be in a tighter situation,” Mohta said.
“I’d say some rationalization should happen. Smaller capacities will go out of the chain. In the longer run -- next 4-5 years -- we’ll see more capacities in the larger hands.”
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First Published: Thu, Jun 03 2010. 05 52 PM IST
More Topics: Steel | Arcelor-Mittal | POSCO | India | Corporate News |