 "Domestic steel companies hike prices by up to 4%")
Following imposition of a minimum import price (MIP) on a range of steel products last week, leading domestic primary steel producers such as JSW Steel, Essar Steel and Jindal Steel & Power have raised product prices by up to four per cent effective Monday (February 8). Some of these companies have hinted at gradual but marginal price hike going forward.
“We have raised prices by less than 4 per cent in the retail segment for both flat as well as long steel products from Monday,” Seshagiri Rao, managing director and group chief financial officer at Sajjan Jindal-led JSW Steel told Business Standard on Thursday. “Since we are in long-term contracts with OEM (Original Equipment Manufacturers), it’s not possible to raise prices for these customers,” he added.
On February 5, the government announced MIP of 173 steel products to curb dumping of cheap steel by countries like China, Russia, Japan and South Korea.
“We have marginally raised product prices from Monday but our overall price hike is going to be a gradual one,” said Ravi Uppal, chief executive officer of Delhi-based Jindal Steel & Power.
Domestic steel companies had been selling products at distressed prices owing to cheap imports that flooded the market.
“Steel prices in India had fallen by over Rs 8,000 per tonne over the last year, severely impacting the operations of steel companies. Though the government has fixed MIP at $445 per tonne for hot-rolled, keeping in mind interests of customers, we have increased prices by 4-5 per cent only,” said a spokesperson of Essar Steel, the unlisted giant.
While the query sent to Tata Steel, India’s largest steel producer, were not answered till Thursday evening, Steel Authority of India Ltd (SAIL) said it was yet to decide on the price hike. “So far, we have not raised product prices since our meeting on pricing is yet to be held,” spokesperson of state-owned SAIL said. According to industry insiders, product prices are not likely to go up drastically because soon domestic production will catch up with the demand.
“With imports of 5-6 million tonnes out of market, there is place for domestic steel producers to raise capacity utilisation and produce more. Since production will jump from all producers, it will allow only marginal hike in steel products going ahead,” said Rao of JSW Steel.
Rating agency Fitch holds a similar view. The agency estimates that MIP will allow domestic producers to raise product prices for most products by $50-$70 a tonne from current levels. The rating agency says because of weak domestic demand, capacity utilisation is unlikely to improve significantly. Hence, additional price increase, if any, would be similar to the current levels (4-5 percent) but spread out over the next three months. Consequently, Fitch expects profitability of steel producers to remain weak compared with FY15 level. “We believe that further steel price increases and a significant improvement in steel producers’ profitability will depend on a strong revival in domestic demand growth,” the report states. The agency continues to consider the increased government spending on infrastructure to be the key catalyst for acceleration in Indian steel consumption growth, which was at 4.7 per cent in the first nine months of FY16. This followed weak demand from key end-user industries, such as real estate.
Globally, supply continues to outstrip demand. The recent announcement by China, the world’s largest steel producer, that it would cut its steel production by 100-150 million tonnes fails to adequately address concerns. China’s capacity is close to 1.2 billion tonnes, with an output of around 800 million tonnes in 2015.
“We have raised prices by less than 4 per cent in the retail segment for both flat as well as long steel products from Monday,” Seshagiri Rao, managing director and group chief financial officer at Sajjan Jindal-led JSW Steel told Business Standard on Thursday. “Since we are in long-term contracts with OEM (Original Equipment Manufacturers), it’s not possible to raise prices for these customers,” he added.
On February 5, the government announced MIP of 173 steel products to curb dumping of cheap steel by countries like China, Russia, Japan and South Korea.
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Domestic steel companies had been selling products at distressed prices owing to cheap imports that flooded the market.
“Steel prices in India had fallen by over Rs 8,000 per tonne over the last year, severely impacting the operations of steel companies. Though the government has fixed MIP at $445 per tonne for hot-rolled, keeping in mind interests of customers, we have increased prices by 4-5 per cent only,” said a spokesperson of Essar Steel, the unlisted giant.
While the query sent to Tata Steel, India’s largest steel producer, were not answered till Thursday evening, Steel Authority of India Ltd (SAIL) said it was yet to decide on the price hike. “So far, we have not raised product prices since our meeting on pricing is yet to be held,” spokesperson of state-owned SAIL said. According to industry insiders, product prices are not likely to go up drastically because soon domestic production will catch up with the demand.
“With imports of 5-6 million tonnes out of market, there is place for domestic steel producers to raise capacity utilisation and produce more. Since production will jump from all producers, it will allow only marginal hike in steel products going ahead,” said Rao of JSW Steel.
Rating agency Fitch holds a similar view. The agency estimates that MIP will allow domestic producers to raise product prices for most products by $50-$70 a tonne from current levels. The rating agency says because of weak domestic demand, capacity utilisation is unlikely to improve significantly. Hence, additional price increase, if any, would be similar to the current levels (4-5 percent) but spread out over the next three months. Consequently, Fitch expects profitability of steel producers to remain weak compared with FY15 level. “We believe that further steel price increases and a significant improvement in steel producers’ profitability will depend on a strong revival in domestic demand growth,” the report states. The agency continues to consider the increased government spending on infrastructure to be the key catalyst for acceleration in Indian steel consumption growth, which was at 4.7 per cent in the first nine months of FY16. This followed weak demand from key end-user industries, such as real estate.
Globally, supply continues to outstrip demand. The recent announcement by China, the world’s largest steel producer, that it would cut its steel production by 100-150 million tonnes fails to adequately address concerns. China’s capacity is close to 1.2 billion tonnes, with an output of around 800 million tonnes in 2015.