FIIs building up holdings in steel majors

Public stake in steel shares declined during July-September

Foreign institutional investors (FIIs) are increasing their exposure in major steel companies.

Shareholding data filed by the companies with the stock exchanges indicate that FIIs have built up holdings in Tata Steel, Jindal Iron & Steel Co (Jisco), Steel Authority of India Ltd (SAIL), Essar Steel substantially during the quarter to September this year.

During July-September, FIIs increased their stake in Tata Steel by 2.37 per cent, in Jisco by 3.6 per cent, 2.96 per cent in Essar Steel and 0.46 per cent in SAIL.

Market sources said FIIs' confidence in steel companies was not echoed by retail investors, with the public shareholding in these companies coming down during the same period.

Public holding in Tata Steel was at 29.65 per cent compared with 30.20 per cent at the end of June quarter. In Essar Steel it was at 28.17 per cent (32.69 per cent), in Jisco at 16.76 per cent (19.21 per cent) and in SAIL at 4.34 per cent (4.97 per cent). Industry sources said despite the price cuts in the domestic market, FIIs had displayed their confidence in steel companies.

"Steel prices are being kept at current levels in the domestic market to keep inflation in check. But prices in the international market are firming up." Prices of hot-rolled (HR) coils in the European Union are at $650-680 per tonne, while those in the US are hovering above $700 per tonne.

European steelmakers are pushing through price raises of up to 50 per cent in their annual contract negotiations, well above the 20 per cent minimum guidance being talked about.

According to international reports, base prices of HR strips in the UK are expected to reach £400 per tonne in January next year, compared with around £375 per tonne currently. Domestic industry expects prices here to increase once inflation is controlled. The price hikes would be led by rising raw-material prices.

Iron ore prices are set to rise by 20 per cent in 2005. This is on top of the rise in all other steelmaking raw materials in the past year.

Moreover, coking coal prices are also expected to increase by 50 per cent next year. Going by the premiums on steel products in the domestic market, trade exprts expect price hikes in the near term.

Premiums on long products, especially channels, are currently between Rs 2,500 per tonne and Rs 3,000 per tonne, while those on flat products are on the rise.

Some companies have even indicated that domestic prices would be reviewed towards the end of this year.