 "Steel firms likely to raise price after MIP extension")
The second extension of the central government-set Minimum Import Price (MIP) in steel is likely to lay the ground for more price increases by domestic producers.
Late Tuesday, via a notification, the ministry of commerce had announced MIP continuation on 66 steel products till December 4. It was first imposed in February for six months and then extended till October 4, to curb the flow of cheaper imports.
Producers are inclined to raise prices, as those of coking coal, a key raw material, have more than doubled from $75 a tonne in January to $210 a tonne now. This would affect long-term coking coal contracts that are due for renewal.
With MIP and allied measures, import of finished steel dropped 35 per cent in April-August to three million tonnes against the corresponding period of last year.
“Continuation of MIP for two months will aid in further strengthening the domestic market and reducing the distress of companies,” said Sanak Mishra, secretary general, Indian Steel Association.
Jayant Acharya, director (commercial and marketing), JSW Steel, recalled the worst for the sector was in December 2015, when international prices touched a low of $255 a tonne. It took a series of measures — safeguard duty, MIP, anti-dumping duty — from the government to restore balance, say producers. The price of hot rolled coil, a benchmark product, increased from Rs 34,000 a tonne in September 2015 to Rs 38,000 a tonne in September 2016; capacity utilisation remained 75 per cent, in spite of additional capacities.
A CRISIL Ratings report for the first half of this financial year says of bank debt downgraded in 2015-16, the steel sector accounted for 40 per cent, compared to only two per cent in the first half of 2016-17.
“The median debt-to-Ebitda (the latter is operating earnings) of downgraded firms is still more than twice that of upgraded firms, although the quantum of debt has significantly reduced,” the report said.
“Without the support, everyone, save a couple of companies, would have been Ebitda-negative,” says Ankit Miglani, promoter-director of the Uttam Galva group. More so as domestic demand growth has been muted. During April-August, consumption grew 1.6 per cent, as against a production increase of 6.5-7 per cent.
Producers believe the coming months could see better demand. A recent ISA report said domestic demand was expected to grow 5.3 per cent in FY17 to 85.8 million tonnes, with higher consumption from the construction and capital goods sectors.
Brokerages, however, feel there isn't much room to raise price of flat products and any increase in long products would be limited. Flat steel is used in the automobile sector; long products in construction and infrastructure. “Prices of flat steel products are already close to MIP levels,” says, a senior analyst with Motilal Oswal.
Shares of steel companies reflect the divergent views. JSW Steel and Jindal Steel stood at Rs 1,787, up 0.1 per cent and Rs 84, up 0.5 per cent, respectively on the BSE. Tata Steel and Steel Authority of India closed at Rs 388 and Rs 49, both down 0.4 per cent.
TRADE REMEDIAL MEASURES
Late Tuesday, via a notification, the ministry of commerce had announced MIP continuation on 66 steel products till December 4. It was first imposed in February for six months and then extended till October 4, to curb the flow of cheaper imports.
Producers are inclined to raise prices, as those of coking coal, a key raw material, have more than doubled from $75 a tonne in January to $210 a tonne now. This would affect long-term coking coal contracts that are due for renewal.
More From This Section
Since April, steel prices have increased by around Rs 5,000 a tonne. “If steel demand moves up in this peak consumption season and the cost of production rises due to increased raw material costs, domestic producers will surely raise prices in the coming months,” Ravi Uppal, chief executive officer at Jindal Steel & Power, told this newspaper.
With MIP and allied measures, import of finished steel dropped 35 per cent in April-August to three million tonnes against the corresponding period of last year.
“Continuation of MIP for two months will aid in further strengthening the domestic market and reducing the distress of companies,” said Sanak Mishra, secretary general, Indian Steel Association.
Jayant Acharya, director (commercial and marketing), JSW Steel, recalled the worst for the sector was in December 2015, when international prices touched a low of $255 a tonne. It took a series of measures — safeguard duty, MIP, anti-dumping duty — from the government to restore balance, say producers. The price of hot rolled coil, a benchmark product, increased from Rs 34,000 a tonne in September 2015 to Rs 38,000 a tonne in September 2016; capacity utilisation remained 75 per cent, in spite of additional capacities.
A CRISIL Ratings report for the first half of this financial year says of bank debt downgraded in 2015-16, the steel sector accounted for 40 per cent, compared to only two per cent in the first half of 2016-17.
“The median debt-to-Ebitda (the latter is operating earnings) of downgraded firms is still more than twice that of upgraded firms, although the quantum of debt has significantly reduced,” the report said.
“Without the support, everyone, save a couple of companies, would have been Ebitda-negative,” says Ankit Miglani, promoter-director of the Uttam Galva group. More so as domestic demand growth has been muted. During April-August, consumption grew 1.6 per cent, as against a production increase of 6.5-7 per cent.
Producers believe the coming months could see better demand. A recent ISA report said domestic demand was expected to grow 5.3 per cent in FY17 to 85.8 million tonnes, with higher consumption from the construction and capital goods sectors.
Brokerages, however, feel there isn't much room to raise price of flat products and any increase in long products would be limited. Flat steel is used in the automobile sector; long products in construction and infrastructure. “Prices of flat steel products are already close to MIP levels,” says, a senior analyst with Motilal Oswal.
Shares of steel companies reflect the divergent views. JSW Steel and Jindal Steel stood at Rs 1,787, up 0.1 per cent and Rs 84, up 0.5 per cent, respectively on the BSE. Tata Steel and Steel Authority of India closed at Rs 388 and Rs 49, both down 0.4 per cent.
TRADE REMEDIAL MEASURES
- Sep 2015: Safeguard duty of 20 per cent imposed on hot-rolled flat products of non-alloy and other alloy steel, in coils of a width of 600mm or more for a period of 200 days
- Feb 2016: MIP ranging from $341-$752 a tonne imposed on 173 steel products
- Mar 2016: Safeguard duty extended till 2018
- Aug 2016: MIP extended to October 4 for 66 products; anti-dumping imposed on import of hot rolled steel products from China, Japan, South Korea, Russia, Brazil and Indonesia, later extended to certain cold rolled items as well.
- Oct 2016: MIP extended till December 4