Steel fall seen as a correction

There seems to be a consensus in the steel industry that the recent fall in the prices of steel products is a correction, and that there is no need to panic.

The prices of hot-rolled 2.5 mm coil "" a benchmark in the industry for price determination"" after seeing an increase of 9.8 per cent to Rs 34,800 a tonne in April from Rs 31,700 a tonne at the start of the year, have fallen to Rs 33,700 a tonne, a drop of 3.16 per cent. For this month, too, the prices are continuing to fall, in accordance with global standards.

CRUspi, a leading indicator for steel prices trends in carbon steel, estimates that global prices for the world as a whole has fallen and any further price fall can be limited by a "reduction in production capacity".

The industry tends to disagree with the results of CRUspi. "This is a cyclical industry and any such price-fall should not be attributed to demand-supply imbalance," defends SC Mathur, executive director, Cold Rolled Steel Manufacturers' Association of India (Corsma).

AS Firoz, director, joint planning committee (JPC), which tracks steel prices, also says there is "nothing alarming about the recent fall in prices", though it will be "difficult to put a specific figure where the prices will stabilise".

Independent steel analyst Rishi Raj echoes similar views. "There is no need to press the panic button. Such price correction is normal though speculators face the maximum brunt during the times of a fall in prices." The London Metal Exchange has been pushing for a long-term contract for steel, just like for other non-ferrous metals.

This will reduce the volatility in steel prices and protect the producers. "But the European industry has not been very supportive of this bold move," says an analyst.