Steel prices to go down

Rs 500-1,000 a tonne reduction likely due to the rising rupee.

Steel prices are expected to be reduced by Rs 500-1,000 a tonne following a stabilization of global and import prices, due to the appreciation of the rupee against the dollar.

The price drop, if it happens, would be the first this year. In March, when the industry partially rolled back prices, it was due to the intervention from the government to rein in inflation.

The industry is considering whether it should increase the discounts or bring down the listed price. A final decision in this regard is expected within a couple of days.

Industry sources said, the reason for a drop is two-fold: the global prices have softened (it has stabilised now) and cheap imports are flooding the market.

Imports of hot rolled coils (HRC) are priced at around Rs 26,000 a tonne, much higher than domestic HRC prices, which are at Rs 35,000-37,000 a tonne. Sources said imports have been on the rise due to the appreciation of the rupee against the dollar.

As the percentage of consumption had increased, imports, which were at 2.1 million tonne in 2005-06, increased to 3.9 million tonne in 2006-07 and is expected to exceed four million tonne this year.

Arcelor Mittal, the world's largest steelmaker, recently announced that it would maintain its current pricing structure for flat products in Europe for the third quarter.

The company also announced that its production volume in the European market will be lower by 3-4 per cent in the third quarter compared with the second quarter, as a result of mill outages.

The steel behemoth expects the move to reduce the level of inventory in the market, which was slightly inflated due to the recent surge of imports.

According to an SBB market survey, 22 per cent of the companies contributing to its Steel Index expect prices will increase during the next three months, while 32 per cent expect it to decrease.

However, the industry expects the current softening of prices to be temporary.

According to Moody's, steel producers would continue to benefit from strong demand and industry consolidation.

"Demand for steel globally is expected to remain solid in 2007 and 2008, given the forecast for the world GDP growth over the next two years," said the Moody's report.