Steel counters gain as pricing improves

World steel prices, which showed signs of softening in May this year, are on the upward march once again. Korean major Posco, the world's fifth-largest steelmaker, said on Wednesday it will increase its stainless steel prices due to a hike in raw material costs.

Posco said it will raise prices of stainless steel by 2.9 to 8.2 per cent, starting with orders received on July 28. The price of hot-rolled stainless steel will be increased by seven per cent while that of cold-rolled steel by 6.9 per cent.

The price increase follows a recent hike in the prices of nickel, the primary ingredient in stainless steel. Nickel prices have recently climbed to over $15,000 per tonne, compared with $11,000 in April, Posco said.

Currently, hot-rolled coil is quoted in the range of $525-550 per tonne. While the slowdown of Chinese demand is posing some concerns, encouraging data on recovery in the US and Europe economies are helping steelmakers maintain firm steel prices.

Going forward, by the end of FY05, steel prices will start reflecting the pressures due to changing demand-supply equation in the rest of the world.

Following the rise in international steel prices, the Indian steel companies are likely to increase prices soon.

The domestic steel makers have held that the customs duty for steel imports which was reduced from 20 per cent to 15 per cent will have no effect on the rise in domestic steel prices.

Despite a reduction in duty twice in the last four months, the landed price of imported steel is higher than the domestic prices of steel.

Hence, domestic producers are not affected. But the rise in excise duty on steel from eight per cent to 12 per cent has already been passed on to the consumers by hiking prices by Rs 1,000 per tonne.

Expecting a bright future on account of rise in steel prices, steel counters have started gaining momentum on the bourses. Already the aggregate market capitalisation of steel companies has gone up 28 per cent in the last one month.

Among major steel players having a capitalisation of above Rs 1,000 crore, Essar Steel reported the highest rise of 84.67 per cent in its share price, from Rs 15 on July 8 to Rs 27.70 on July 22.

Jindal Iron ranks second with a 30.43 per cent rise in prices, followed by SAIL (29.96 per cent), Jindal Vijaynagar Steel (29.4 per cent), Jindal Steel & Power (28.7 per cent) and Tata Steel (22.6 per cent).

The share of steel sector in the aggregate market turnover has also perked up since the beginning of the July 2004. The steel sectors' share in the combined turnover on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) moved up from 12.2 per cent on July 1 to 18 per cent on July 21.

In volume terms (number of shares traded) the share of steel counters in aggregate volumes soared from 19.4 per cent to 36 per cent.

Hectic activity in steel counters has resulted in the sector's turnover increasing from an average of Rs 700- 800 crore per day in the beginning of July to around Rs 1,000-1,400 crore now. The number of shares traded at steel counters rose from around 5-8 crore shares to 15-24 crore shares.