BackIntegrated steel firms shun product premiums to push sales
Price premiums have halved in percentage terms in the last two years, narrowing the price gap between branded and unbranded steel
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Weak demand and competition from cheaper steel imports is forcing integrated steel companies such as JSW Steel Ltd, Steel Authority of India Ltd (SAIL) and Tata Steel Ltd to cut the price premium they enjoyed over unbranded steel.
Price premiums have halved in percentage terms in the last two years, narrowing the price gap between branded steel and steel available in the open market.
Price premiums enjoyed by bigger steel companies have fallen from a range of 5-10% of the prevailing market price two years ago, to up to 4% of the market price at present, two Mumbai-based steel dealers told Mint.
Jayant Acharya, director-commercial and marketing, JSW Steel, agreed that the price differential has narrowed, but declined to put a number to it.
“Brand premiums have come down due to excess supply and weak demand," said Acharya.
The exact price premium as a percentage over the prevailing market price varies from product to product.
“Customer preference is moving from a branded requirement to a customized requirement. Earlier, a customer may ask for a specific brand; today they ask for specifications that suit them," said one of the two dealers mentioned above.
In some categories, such as TMT (thermo-mechanically treated) bars, dealers say, price premiums have ceased to exist. TMT bars are a sub-category of long steel products used in construction activities.
“The current market price for TMT bars is around ₹ 32,000 per tonne plus value-added taxes. The branded steel companies are also selling at the same price. There is no concept of price premium left due to weak demand," said a third Mumbai-based steel dealer who also did not want to be identified.
Some analysts say the drop in premiums charged by larger steel firms is, in part, a deliberate attempt by them to retain market share.
“In the last 6-7 months, we have seen that large companies are giving discounts on their products, which essentially means that they are sacrificing their premiums to push their sales. This will lead to a market share gain for them when Chinese and Russian imports start to come down," said Goutam Chakraborty, analyst with brokerage Emkay Global Financial Services Ltd.
He said smaller steel companies are being squeezed between low-priced imports from China and Russia and lower demand. These companies do not have the operational leverage to cut prices and are being forced to cut production.
The pace of growth in production at smaller steel firms has come down from 7.8% in January to 0.4% in June, according to data available with the Joint Plant Committee, a statistical body under the ministry of steel.
Since June, production at smaller steel firms has been consistently contracting. It fell 1.5% in September.
The larger steel firms have fared better and grown their production at a rate of 3-4% between January and September, the data shows.
Acharya attributes the increase in production to higher penetration through lower prices and lower competition.
“Product-wise, it is difficult to say (whether integrated steel companies are taking away market share). We have been able to increase market share, but I will not be able to say the same for the others. Some bit of decrease in competition and some bit of penetration has lead to the increase (for JSW Steel)," Acharya said.
However, Tata Steel and Essar Steel disagree that their premiums have fallen.
“Our price premiums have not dropped over competition. In fact, on percentage basis, the premiums are higher due to change in the base prices," said a spokesperson for Tata Steel in an email response.
Vikram Amin, executive director-strategy and business development, Essar Steel, said, “Essar Steel traditionally always enjoyed 3-5% premium over market price and this has been maintained in all circumstances due to superior quality and versatile product range,"
An email query sent to Jindal Steel and Power Ltd and SAIL on 23 October remained unanswered.
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