Market poised for further rise

IN FOCUS/ STEEL

The new year is likely to see a series of price hikes from the steel producers, if they have to protect their bottomline.

The signals indicate a steep increase in raw material prices and if the increased freight charges are added to it, then the major steel producers were likely to resort to price increases.

After the recent price hike announced by some of the major producers, the industry has agreed to revisit prices towards the end of December or early January.

What appears to be most worrying for the steel industry was rising raw material prices. The yearly long-term iron ore contracts, which would be renewed now were headed for at least a 20 per cent increase.

Industry sources further explained that the increase could be to go to the extent of 25-30 per cent, owing to the strengthening of the Australian dollar.

In the domestic market also, iron ore prices have soared. Prices, which were at around Rs 850 per tonne in April 2003 were now hovering around Rs 1,145 for the high quality.

Pellet prices have also soared with prices increasing from Rs1,700-1,800 per tonne in April 2003 to Rs 5,600 per tonne, now.

Coke prices, brought some respite in the middle of the year but, were now headed upwards. Prices increased by $20 per tonne over the last week. Coke prices, which were at $210 per tonne in October were now at $270 per tonne.

Industry sources said, there were indications that coking coal contracts for 2005 would be finalised by the end of this month for most of the companies, were likely to be priced at $90-100 per tonne as compared to $65-75 per tonne, for 2004.

The domestic demand was also holding on. Even after the price increase, premiums for flat products ranged between Rs 500-700 per tonne. However, the major volaitility was in the long products market.

According to industry sources, exports were down significantly since last year as producers decided to meet commitments in the home market.

Sources said, the construction boom in the country was the main source of demand and the industry was upbeat about an equally robust 2005.

According to estimates, the overall export growth was lower by 21.5 per cent during the first quarter of 2004-05 with the non-flat segment reporting a higher decline in exports growth of 46.9 per cent.

Industry sources said, the drop in exports was partly due to a strong domestic market and the government's virtual curb on excessive exports.

However, despite the surge in demand, steel producers were apprehensive that margins would be squeezed due to rising raw material prices.