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Strong demand takes steel prices to new highs

Strong demand takes steel prices to new highs
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First Published: Wed, Feb 20 2008. 11 41 PM IST
Updated: Wed, Feb 20 2008. 11 41 PM IST
A pledge last week to roll back steel prices has produced little impact on the domestic market as demand for the commodity remains strong.
As a matter of fact, even the seven steel producers who promised the government they would reduce prices have yet to do so. On 14 February, as steel minister Ram Vilas Paswan stood by, steel producers agreed to lower prices of two grades of hot-rolled steel used in construction by Rs1,000 and by Rs500. But according to the Cold-Rolled Steel Manufacturers Association, they’ve seen no such relief.
Both Steel Authority of India Ltd (SAIL) and Tata Steel Ltd have reduced prices by only Rs415 a tonne, while JSW Steel Ltd has reduced rates by Rs200. Meanwhile, Essar Steel Ltd, Jindal Steel and Power Ltd and Ispat Industries Ltd have not brought prices down at all.
Most of these big producers have a monopoly on the 25 million tonnes hot-rolled coils produced in the country, and cold-rolled steel makers depend on them to further make steel for roofing, automobile interiors and kitchenware.
“The rollback is not sufficient at all as prices were increased by Rs4,000 in the first two months. The declared rollback is about Rs500 to Rs1,000. Since the net effective price is still Rs3,000, which is still disproportionate to input cost, where is the reduction?” asks Rajnikant S. Ajmera, managing director of Mumbai-based Shree Precoated Steels Ltd.
Analysts predict that with or without the steel minister’s intervention, hot-rolled steel prices are likely to rise by 10% in April on the back of strong demand internationally.
Currently, prices for steel in China is hovering at $550 a tonne. Steel prices have gone up by $125 a tonne in the US and by $84 ton in Europe in the past month-and-a-half.
Chinese prices, which form the benchmark price for India, have shot up by $24 a tonne.
“Higher raw material costs will continue to put pressure on steel companies. Despite the reliefs on freight and excise duty expected during the Budget, costs will be passed on to consumers to maintain their margins,” said Ashish Poddar, research analyst at Almondz Capital Market Pvt. Ltd.
Reports from across the country demonstrate that steel prices for construction steel are at an all-time high, rising 26-27% in 10 months. In large production hubs such as Mandi Gobindgarh in Punjab, prices for the commodity touched a record of Rs33,600 a tonne on Wednesday. In Kolkata, prices of different grades went up to between Rs33,000 and Rs38,000 a tonne.
“Since the prices were already announced before the price hike, there has not been much impact,” said Prem Gupta, joint secretary of the West Bengal Rolling Mill Association. “Unless India imposes a ban on iron ore exports just as China has imposed on steel products, we will be unable to control prices.”
And the skyrocketing prices are not simply due to rising raw material costs such as iron ore, coking coal and power. According to market observers, large-scale export of billets due to global shortage following China’s export duty on the product is causing a scarcity in the market, causing prices to soar. Billet is an intermediary steel product used in making wirerods for homes.
Companies such as SAIL, Rashtriya Ispat Nigam Ltd, Tata Steel and JSW Steel meet 30% of the country’s long products used in the construction industry.
Cold-rolled steel maker Bhushan Steel and Power Ltd, which buys TMT bars from Steel Auhtority of India Ltd, says the company is yet to reduce prices of thermo-mechanically treated or TMT bars, which cost Rs30,000 a tonne. However, after paying sales tax and excise duties and freight, TMT bars could cost as much as Rs40,000 a tonne in New Delhi.
“There has been no rebate in TMT bar prices,” said Anil Choudhary, vice-president, marketing, at Bhushan Steel and Power. The company buys 350,000 tonnes of hot-rolled steel from SAIL to feed its 125,000 tonne cold rolling mill.
But a SAIL official, who did not want to be identified, maintained that a majority of its customers are benefiting from the goods sold at its distribution centres and branch offices.
“We have not not reduced prices for companies that have signed long-term contract for TMT bars because they are already buying from us at a reduced rate,” the person said.
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First Published: Wed, Feb 20 2008. 11 41 PM IST