The July-September period will see erosion of profitability of steel companies as the gloomy demand scenario would prevent them from hiking rates amid high input cost pressure, a government official said today.
"The current quarter would be the weakest link in the financial year 2010. Margins, profitability of steel companies will take a hit amid high input cost pressure, sluggish demand scenario," Joint Plant Committee Chief Economist A S Firoz told PTI.
The Joint Plant Committee is a government agency which collates data on the Indian iron and steel industry, conduct techno-economic studies, among others.
Steel firms have seen prices coming down by up to Rs 6,000 a tonne to around Rs 27,000-33,000 a tonne in past few months as construction work slowed down ahead of monsoon.
"During monsoon now, steel demand and prices, especially of long steel products, are expected to fall again in the current quarter," Firoz said. Long steel products are mainly consumed by construction and infrastructure companies.
He said, however, firms which produce flat steel products -- mainly used by automobile and consumer durables industry -- may consider hiking rates of some segments to stay afloat.
"Steel makers can increase prices of products, which have demand. Considering the demand, they can always adjust prices. But, global prices at present are ruling low, there have been cheap imports in last few months," he added.
Leading steel producers like Essar Steel and JSW Steel are looking at increasing price in some segments in the current month.
Prices of raw material -- iron ore and coking coal -- are at present ruling around 50-100 per cent high. Spot iron ore prices are ruling at around $115-120 a tonne and coking coal prices at around $200 a tonne level.
"The recent correction in spot prices of these raw material have not yet been reflected under the supply contract, so the input cost pressure is still there," Firoz added.