Steel scrips fancied on strong demand

Imminent hike in prices, despite higher input costs, expected to lead to better realisations.

A strong international and domestic demand and an expected price hike have helped steel companies attract huge investor attention on the bourses.

The metal sector, specially steel companies, have had a dream run on the bourses, with the BSE metal index hitting a lifetime high a few sessions back on huge investor demand. Brokers added that the sector has also benefitted by an all-round rally in equities.

A hike in steel prices is imminent due to the higher input costs and it will eventually result in better price realisation, analysts added.

Buoyed by a firm demand and rising input costs, domestic steel makers are expected to hike steel prices for their annual contracts beginning April, analysts said.

The Tata Steel counter saw its price jump 11.34 per cent from Rs 387.25 on January 3, 2005 to Rs 431.15 on March 10, 2005.

Uttam Galva saw its price surge by almost 27 per cent from Rs 41.50 to Rs 52.65, Essar Steel gained 25 per cent from Rs 40.75 to Rs 50.95, Ispat Industries was up 11.20 per cent from Rs 24.10 to Rs 26.80 and the SAIL counter was up 2.63 per cent from Rs 62.85 to Rs 64.50 in the same period.

Private sector major Tata Steel has already announced that it would be raising prices for all its long-term contracts from April 1. Last week, Ispat Industries also announced a price hike of Rs 1,500-Rs 2,000 per tonne.

Analysts expect domestic steel prices to rise by Rs 4,000 per tonne during the next year. "Prices could go up by Rs 4,000 per tonne in 2005-06. However, the rise will be spread over the entire year," said an analyst.

Most of the major steel makers have justified the price hike on account of higher input costs and it is also in line with rising global steel prices.

While announcing the price hike last month, a Tata Steel official said, "There has been a consistent rise in global steel prices. Taking into consideration the demand scenario, prices of annual contracts will undergo an upward revision from April. The price increase will be for all products."

Other steel majors such as the Steel Authority of India, Jindal Iron & Steel Company and Essar Steel have not yet announced any price revisions.

However, senior officials from these companies said that the decision of price changes is likely to be taken towards the end of this month. Domestic spot price of hot-rolled coils, the benchmark for steel prices, is currently hovering at Rs 29,200 per tonne, excluding freight, excise and other duties.

Ispat Industry officials said, "There is an overall shortage of metals and coal. This has pushed up iron prices sharply, while coal prices have gone up by more than 2.2 times, which has resulted in the increased cost of production by $80-$100 per tonne. Companies like us, who don't have captive raw material resources, have no other option but to recover it by increasing prices."

A steel sector analyst said, "International iron ore prices of annual contracts for 2005-06 have spiked by almost 70 per cent. This trend is likely to be followed by domestic iron ore companies, which is likely to be passed on to the consumer."

Arcelor, the French steel maker, has recently announced that it would be passing on the entire increase in input costs to its customers.