Steel firms lower prices as demand stagnates

Steel companies have lowered prices for the first time since the government introduced trade measures like the minimum import price (MIP) on the back of lower demand.

Steel producers said selling prices were lower than list prices by Rs 2,000-3,000 a tonne. 

“List prices haven’t come down, but transactions are taking place at lower prices,” a producer said.

The last increases over December and January were Rs 3,000 a tonne each month. 

“The problem is with domestic demand, which is not growing to the extent it should. Auto demand alone cannot drive domestic demand,” another producer said. According to the data, consumption growth during April-January was 3.6 per cent. Year-on-year, consumption growth in January is around 4.3 per cent. 

In 2015-16, the consumption of Indian steel stood at 81.5 million tonnes, which was up by 4.8 per cent.

An ICRA report towards the end of December said domestic steel demand remained largely stagnant in the first quarter of FY16 with consumption growing by only 0.4 per cent year-on-year but steel consumption growth in the second quarter was much higher at 6.8 per cent. 

Demonetisation came in November and dragged down retail sales. Steel producers say the numbers probably don’t reflect the dismal condition of domestic demand in India.

According to a CARE Ratings report, after demonetisation, steel consumption is expected to remain under pressure in the coming few months to a certain extent. “This is because it is likely that the demand for steel from the user industries like construction and real estate will take some time to strengthen. However, the government push towards infrastructure will compensate for this reduction in demand.” But, the report also said consumption in India should move in line with production.

gearing up, Steel

What has helped producers is the export market. The data indicate that exports have increased 73 per cent during April-January to 5.9 million tonnes and India is poised to become a net exporter this year with imports having declined by 38 per cent to 6.1 million tonnes. Steel companies are diverting output to the export market. So, even though there is an increase of around 11 per cent in finished steel production during April-January, it hasn’t hurt the industry in the wake of a muted demand because much of it is making its way to the export market. 

“It is better to export even though realisation in the export market is less by about Rs 1,000 a tonne,” a producer said.

The other plus for Indian companies is that producers here have been able to recapture the market that import-fed. So, even if the consumption is not growing to the extent desired, government measures like the MIP have ensured that whatever is consumed is made in India. “Even though steel is selling at lower prices this month, it is still higher by Rs 7,000 a tonne since MIP was implemented by the government.” But, CARE Ratings has cautioned that the protection would not last forever and the industry would have to gear up to face competition in the normal course.