Amid rising steel prices, threat of more supply shortages looms

Amid rising steel prices, threat of more supply shortages looms
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First Published: Thu, Mar 06 2008. 11 42 PM IST

Updated: Thu, Mar 06 2008. 11 42 PM IST
New Delhi: World steel production will be short of demand by 60 million tonnes (mt) in 2008 as China, the world biggest steel producer, is likely to cut back exports amid lower production, and a global coking coal shortage affects production of another 20mt of steel, according to an analyst report.
China’s net export may decline by 20mt, against an increased demand of 20mt outside China projected for this year. This is for the first time in 15 years that production has fallen as costs spiral upward, according to a steel sector report from Credit Suisse Group.
In the past seven months, year-on-year world production has dropped in the European Union and China, which together account for just more than half of global output. China registered a low 2.5% production growth in January this year. China will also register a negative incremental export for the first time in five years on lower domestic iron ore production.
The report attributes low production of raw materials—iron ore and coking coal—in China as the main reason for low steel production. Even imports, it noted, may not be able to lift supply from the current levels.
India will also be affected due to a severe supply shortage of coking coal from Australia, which is expected to fall by 16-24mt, and which can make about 20-30mt of steel. Indian steel producers are now buying coking coal from the spot market for $320-350 freight on board to cope. The shortage is mainly caused by heavy rain and the temporary closure of a few staple mines in Queensland, which meets 80% of India’s supply. This will slow production by 6-8% in steel mills with blast furnaces, which rely on coking coal.
“Shortages of coking coal will severely impact India because of its reliance on imports,” said Neelkanth Mishra, an analyst and co-author of the Credit Suisse report.
While steel firms have hiked prices several times in the past year, the report said government control on price increases are unlikely to work as India becomes a net importer. Twice in the last month, steel minister Ram Vilas Paswan has asked the industry to restrain raising prices—although steelmakers have largely ignored his pleas.
Indian firms have raised steel prices by Rs1,500-2,000 this week for the third time this year, in anticipation of rising raw materials costs. The average retail price of steel is more than Rs40,000 per tonne, including taxes and duties.
The long-term benchmark prices of iron ore, the other input in steel making, are expected to go up by 65% from April.
According to the 3 March Metal Bulletin report, mining firm Xstrata Plc. has indicated raising annual coking coal pri-ce threefold for 2008, almost to the current level of spot price, which is hovering at $330 a tonne. It was $98 last year.
According to an Indian steel company executive, who spoke on the condition of anonymity, the impact of higher coking coal prices on finished steel will be $177 per tonne.
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First Published: Thu, Mar 06 2008. 11 42 PM IST
More Topics: Steel | China | Supply | Production | Coking Coal |