Steel prices likely to soar

May rise by Rs 500/tonne on booming construction, power cuts in Punjab.

Structural and long steel prices are likely to increase by Rs 500 a tonne this month because of a renewed demand from the construction sector and fears of low production ahead in the wake of a planned power cut by the state electricity board in Punjab.

According to Anil Suraj, a Gobindgarh-based steel analyst, the Punjab government is likely to implement a power cut for 4 to 5 hours in industrial units and 6 to 8 hours in residential complexes. This would affect around 430 steel rolling mills in and around Gobindgarh, which accounts for about 23 per cent of the country's total 40 million tonnes of production.

Anil further said the government could not curb the price rise any more due to a rising demand for steel. The government had pressured primary producers to prevent a price rise earlier, but now the rise could not be resisted any longer, he added.

Since the beginning of the second fortnight last month, prices of raw materials, including ingot and scrap, have gone up by Rs 600-700 a tonne because of a tight tight supply. Domestic generation of steel scrap, especially from shipbreaking, has come down as no ships are coming to the country for dismantling. Therefore, domestic users depend solely on imports of steel scrap or they use ingot as a raw material.

The prices of the finished products remained steady during the last 15 days, with mild steel (MS) ingot currently quoting at Rs 25,350 a tonne, while hot-rolled coil (HRC) and cold-rolled coil (CRC) are sold at Rs 32,300 and Rs 36,500 a tonne, respectively. Moving in tandem, HR and CR sheets are priced at Rs 31,900 and Rs 36,700 a tonne, while galvanised products are sold at Rs 38,500 a tonne in Gobindgarh, the country's largest physical steel market.

The construction activities are likely to continue into the rainy season as a number of infrastructure projects, including national highways, multiplexes and roadways, are lined up for completion within the stipulated time. The demand of steel is, therefore, set to rise even during the slack rainy season.

"We are used to the annual power cuts as the demand for electricity in Punjab is several times that of generation. Surprisingly, despite the power cuts affecting steel production every year, the government is yet to take any adequate measures to facilitate the production without any interruption," said Anil.

In the last six months, about a dozen new rolling mills with a daily production capacity of 150-200 tonnes have mushroomed in Gobindgarh, with no threat for the existing units.