ECA move may trigger sell-off in steel futures

Steel prices are likely to fall in the futures market and may slip by 10 per cent in the spot market if the government brings the alloy under the Essential Commodities Act (ECA), according to analysts.

Prices of steel have surged by more than 70 per cent in the futures market in the last one year. "If steel is brought back again under ECA, prices may come down by 10 per cent," D K Aggarwal, managing director, SMC, a commodity brokerage firm, said. "Market sentiments in the futures market will also be affected by the move."

Karvy Comtrade Research Head Harish G said,"There will not be any direct impact on futures trading in steel but prices would definitely come under pressure". "It would create a kind of panic selling in the market," he added.

Spot as well as futures prices of steel in the country's leading commodity bourses - NCDEX and MCX - have seen a whopping 73 per cent increase in the last one year. Currently, steel for April delivery is ruling at Rs 31,840 a tonne, while it was at Rs 18,462 a tonne a year ago.

Steel Minister Ram Vilas Paswan has written a letter to Prime Minister Manmohan Singh suggesting various fiscal and non-fiscal measures, including putting steel back under ECA so as to bring inflation under control.

Steel was removed from the ambit of the act last year as prices were under control.

"With prices spiralling high and demand-supply mismatch shooting up by nearly 10 per cent, we need to ensure that the sector contributes effectively in containing inflation," a senior steel ministry official said.

Market experts attributed the rising inputs costs - iron ore and cooking coal - for the surge. Both iron ore and coking coal prices have shot up more than 100 per cent in the last one year.

International prices of iron ore have risen to $142 a tonne this year as against $84 a tonne last year. Coking coal has gone up to $140 a tonne from $60 a tonne.

In the letter, Paswan said that steel prices have increased by 20-24 per cent this year. Possibilities of setting up a regulatory mechanism for steel and its inputs, and reclassifying steel as an essential commodity may be considered, he added.