 "Primary steel firms may roll back price rise")
Though the depreciating rupee has prompted domestic primary steel producers to either raise or consider raising prices this month, high inventory and a bleak demand outlook might trigger a roll-back in prices by the month-end or the end of this quarter, analysts say.
“The idea to raise the prices of steel products (for August) is mainly to test the market appetite,” said an analyst with a local brokerage. Producers wanted to ascertain whether buying would take place at high prices, the analyst added.
Essar Steel has raised the prices of all its products by Rs 1,000-1,200, while JSW Steel has raised prices about three per cent. Rashtriya Ispat Nigam was expected to revise prices after August 10 and Steel Authority of India Limited (SAIL) and Jindal Steel & Power Limited (JSPL) were also mulling price rises, sources said. “We (SAIL) go according to the industry trend,” said a source.
The rupee has been weakening since May-end; until last week, it fell about 12 per cent. Owing to this, the gap between imported and domestically produced steel had widened considerably, with the former being costlier, said analysts. “To the landed price of steel, when rupee conversion happens, an import duty of 7.5 per cent is levied,” said a city-based analyst. This had caused the price of imported steel to be much higher than the variety produced domestically, he said, adding, “Currently, the gap between imported and domestically produced steel is $40-50 a tonne (July-end), against about $30 in June-end.”
Due to this, though domestic primary producers had raised rates, their price points continued to be lower than those of imported steel, analysts said, adding it was this space primary steel producers were trying to tap and gauge the market appetite for.
“This being the monsoon season, steel demand is usually weak in the domestic market,” said Prasad Baji, senior vice-president, Edelweiss Securities. “To add to it, the overall investment climate looks unfriendly, with end-sector demand being weak. In such an environment, high prices cannot sustain. So, a roll-back in prices is likely,” he added.
Overall inventory build-up in the domestic steel industry stood at four-five million tonnes, said the analyst with the local brokerage. This indicates the low demand for the alloy in the local market.
Apart from the slowing economic growth, general elections due in 2014 are also seen as a negative for the industry. “No fresh announcements for infrastructure or construction projects are likely just ahead of the elections and so, the peak steel demand season may also be dry for the industry,” said the analyst.
The October-May period is a strong demand season for the industry, as industrial and construction activity is at its peak. June-September is seen as a lean period, as the monsoon brings industrial activity to a standstill. The ongoing monsoon season, oversupply in the market, poor investment climate and the inventory build-up would possibly lead to a roll-back in prices, analysts said.
“The idea to raise the prices of steel products (for August) is mainly to test the market appetite,” said an analyst with a local brokerage. Producers wanted to ascertain whether buying would take place at high prices, the analyst added.
Essar Steel has raised the prices of all its products by Rs 1,000-1,200, while JSW Steel has raised prices about three per cent. Rashtriya Ispat Nigam was expected to revise prices after August 10 and Steel Authority of India Limited (SAIL) and Jindal Steel & Power Limited (JSPL) were also mulling price rises, sources said. “We (SAIL) go according to the industry trend,” said a source.
ALSO READ: Essar Steel raises prices, JSW to follow
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The rupee has been weakening since May-end; until last week, it fell about 12 per cent. Owing to this, the gap between imported and domestically produced steel had widened considerably, with the former being costlier, said analysts. “To the landed price of steel, when rupee conversion happens, an import duty of 7.5 per cent is levied,” said a city-based analyst. This had caused the price of imported steel to be much higher than the variety produced domestically, he said, adding, “Currently, the gap between imported and domestically produced steel is $40-50 a tonne (July-end), against about $30 in June-end.”
Due to this, though domestic primary producers had raised rates, their price points continued to be lower than those of imported steel, analysts said, adding it was this space primary steel producers were trying to tap and gauge the market appetite for.
“This being the monsoon season, steel demand is usually weak in the domestic market,” said Prasad Baji, senior vice-president, Edelweiss Securities. “To add to it, the overall investment climate looks unfriendly, with end-sector demand being weak. In such an environment, high prices cannot sustain. So, a roll-back in prices is likely,” he added.
Overall inventory build-up in the domestic steel industry stood at four-five million tonnes, said the analyst with the local brokerage. This indicates the low demand for the alloy in the local market.
Apart from the slowing economic growth, general elections due in 2014 are also seen as a negative for the industry. “No fresh announcements for infrastructure or construction projects are likely just ahead of the elections and so, the peak steel demand season may also be dry for the industry,” said the analyst.
The October-May period is a strong demand season for the industry, as industrial and construction activity is at its peak. June-September is seen as a lean period, as the monsoon brings industrial activity to a standstill. The ongoing monsoon season, oversupply in the market, poor investment climate and the inventory build-up would possibly lead to a roll-back in prices, analysts said.