Steel prices still firm despite excess capacity pressure

Market remains soft, even as producers resist traders’ demand for cut in prices.

There is over-capacity in the steel industry but prices are still holding up, with many producers denying moves to cut prices.

World Steel Association (WSA) figures indicate global production was 122 million tonnes in April, an increase of 35.7 per cent over April 2009. The world’s largest steel producer and consumer, China, saw a 27 per cent increase in crude steel production to 55.4 mt, the highest it has ever done in a single month.

With most mills in the process of normalising capacity, the crude steel capacity utilisation ratio of the 66 countries reporting to the WSA in April was 83.4 per cent. Compared to April 2009, the ratio was 18.9 percentage points higher.

The market is still soft and traders have been pressing for a price cut, but mills are not relenting. Earlier this month, prices of flat steel—used in the automobile and white goods sectors—were cut by Rs 2,000-3,000 a tonne. The cut was driven by the euro crisis and China’s tightening policy. China’s Baosteel, regarded as a benchmark for the steel industry, cut July prices by 10 per cent in June.

Also, there were indications that Chinese steelmakers might cut production in the third quarter, on weak demand and high costs.

“In cold rolled, we are flooded with orders but in galvanized, things are bad,” said Ankit Miglani, director (commercial), Uttam Galva Steels.

However, prices were unlikely to be cut next month, though there was some threat of a capacity cut.

“Import of hot rolled coil at $630-640 a tonne and current prices in the market are at the same level. There is unlikely to be any price cut. Prices are likely to be rolled over,” said Neeraj Singal, managing director, Bhushan Steel.

There is contrary news as well. Some of the international steel majors have increased prices from July. Posco is planning a hike of nine per cent in the benchmark hot rolled coil (HRC) prices, while JFE Steel has announced an increase of $110 a tonne in special wire rods for July-September.

“The price increase announced by international steel producers could lift sentiment to some extent. We will take a call on prices by the end of the week,” said a steel producer.

Also, China’s pledge to make its currency more flexible could augur well for the sector, as it would boost purchasing power.