Steel companies are still trying to cope with the slowdown that began four months earlier as buyers began deferring their purchases, hoping for prices to fall. A 50 per cent jump in imports during the April-June quarter has lowered demand for domestic steel by five per cent. Rising inventories have also led investors to hammer the stocks of steel companies.
Seshagiri Rao, Joint MD & Group CFO, JSW Steel, said buyers were expecting prices to come down further. ‘‘Apparent demand is not there. Things will be alright once the de-stocking cycle is over,’’ he said, in a recent interview. As a result, inventory levels are up 20-25 per cent and steel prices have come down 10 per cent.
Between January and April, steel consumers expected commodity prices to go up and stocked. Presently, buyers are not buying afresh, but using their inventories. ‘‘It will get exhausted in two-three months. Demand is an issue right now,’’ said Sandeep Jajodia, vice chairman & MD, Monnet Ispat & Energy, in an interview with Business Standard.
"In the last two months, we haven’t cut production but there has been a 10 per cent dip in prices and the marketing also has been a little tough; our inventory levels have gone up 20-25 per cent. But this is temporary,’’ said Jajodia. This is reflected in the prices of steel stocks, which have been hammered by 20-30 per cent since end-March.
The share price of JSW Steel has dropped 18 per cent from a 52-week high price of Rs 1,350, touched on March 26, while Tata Steel fell 29 per cent in the same period. Experts note that buyers are liquidating stocks, as they do not anticipate any increase in prices in the near future. Steel imports doubled to 2.5 million tonnes in April-June against 1.4 million tonnes in the same period last year.
Experts say the subdued economic climate in Europe and the US has reduced demand in the West and most imports were flowing to the East, which explains the increase in imports and the drop in prices. The industry’s woes may not improve much in August, when there’s a seasonal slowdown in Europe because of holidays.
