Amidst all the gloom surrounding the Indian steel sector, prices are again looking up showing signals of a better 2013.
Some steelmakers have started to give out feelers to the market that steel prices will go up in the coming months. A dealer based in Mumbai said that prices for flat steel have already started moving up. Rashtriya Ispat Nigam Ltd (RINL) increased rates by Rs 500 per tonne this month when it followed most of the bigger steelmakers who had raised prices by upto Rs 1500 a tonne.
Although the move has been initiated to protect profit margins as raw material prices have gone up in the same range, it is a positive sign as earlier companies did not have the confidence to increase prices.
Steel demand growth in the current year has been low at 5-6% as against industry expectations of 8-10%. This, is anticipated to have made companies cautious in their approach towards pricing.
An analyst tracking the sector said, “There has been a demand push off-late and this has helped steelmakers in raising prices.” He said that there has been a good 5-7% price hike in both flat and long steel products on an year-on-year basis.
Prasad Baji and Navin Sahadeo of Edelweiss Research in a report dated December 4, said that there are signals of the end of slowdown in the metals sector. They also indicated that lead indicators have been bottoming or improving in recent months. They said, “One of the indicators we monitor has indeed turned up. Sequential growth in projects under implementation across all three categories—infrastructure, capex and construction—has moved up in the past one-two quarters, indicating that the worst is probably over.”
Although, steelmakers are yet to report a spurt in sales, this year is generally better than the previous one. Tata Steel, country’s largest steelmaker, said its sales for the first half of the year were at 3.31 million tonne as against 3.24 million tonne in the same period last year.
State-owned Steel Authority of India (SAIL), too, said that it is seeing a demand pickup in the recent weeks. This demand push in long steel metal is giving steelmakers the required confidence to push prices upwards. With the increase in long steel demand which is used in infrastructure and the construction sector, even flat steel sales and prices are looking up.
Flat steel is mainly used in making automobiles like cars and consumer durables like refrigerators and air conditioners, etc. Till around 2008, flat steel contracts were normally signed for one year period with price lock-ins. However, after sharp fluctuations in coking coal and iron ore prices during the global meltdown, steelmakers scrapped the ritual and resorted to much shorter contracts, in most cases, quarterly, with an option to negotiate prices on a regular basis.
Based on this, flat steel price hikes, car-makers have already started increasing rates. India’s largest carmaker, Maruti Suzuki, raised prices in October and will be doing it again in the new calendar. Hyundai Motor and Volkswagen India, too, are considering hikes because of the rising input prices, including steel.
