Steel scrips melt on price cut worries

The steel sector has lost almost 8 per cent in market capitalisation in the last two trading days. Steel scrips lost ground on Friday after the government reduced import duty on non-alloy steel to 5 per cent from 10 per cent in a bid to check inflation.

Steel major Tata Steel's move to slash steel prices by Rs 2,000 per tonne has had a further dampening effect on the entire steel sector as most steel stocks ended with losses on aggressive selling pressure. In the last two days, the combined market cap of 74 steel companies declined by nearly 8 per cent (Rs 3,431 crore) to Rs 41,172.81 crore today.

In today's trading, the Tata Steel stock crashed 5.60 per cent to Rs 245.15 after the company said it would cut prices of all its main products by Rs 2,000 per tonne with effect from Sunday midnight. The counter witnessed impressive volumes of more than 65.80 lakh shares on the BSE on Monday.

The Steel Authority (SAIL) scrip topped the volumes chart with over 1.6 crore shares traded on the BSE. The SAIL stock was down 7.06 per cent to Rs 37.50 after the company announced a Rs 1,000 per tonne cut in prices. Essar Steel has also announced a Rs 560 per tonne reduction in steel prices today.

The other major losers among the steel stocks were Kalyani Steels down 10.45 per cent to Rs 61.30, Ispat Industries down 8.09 per cent to Rs 9.89, Tata Sponge Iron down 7.28 per cent to Rs 129.30, Jindal Vijaynagar Steel down 6.92 per cent to Rs 10.23, Bhushan Steel down 5.95 per cent to Rs 117.80, Uttam Galva Steel down 5.50 per cent to Rs 18.90, Jindal Strips down 4.34 per cent to Rs 200.80, Jindal Iron down 4.14 per cent to Rs 239.40 and Sesa Goa down 6.92 per cent to Rs 530.05.

Sector analysts, however, opine that the long-term growth story in the steel sector is intact and the recent price reductions will not have any major impact on the bottomline of the steel companies.

Divyesh Shah, national sales head of Indiabulls said, "Today's correction in the steel sector stocks was more of a sentimental sell-off. Fundamentally, nothing much has changed as the present reduction in steel prices will not have major impact on the companies bottomline. Only companies, who are big sellers of steel in the spot market may feel the pinch of the reduction in steel prices."

However, a section of market feels that steel stocks may now lose steam following the government's latest move to cut customs duty which would reduce the scope for a price hike by domestic steel makers, as it would result in reduction in landed cost of imports.

In contrast to the reduction in domestic prices, steel prices globally are on the rise due to strong demand particularly from China. Only last week, South Korean steel major Posco said it would hike prices effective from September 2004.