JSW Steel, India’s biggest private sector steel producer, has decided to increase steel rates yet again.
This time the quantum of increase has been kept between Rs 500 and Rs 750 per tonne for both flat and long products and will be effective from March 1. This is in contrast to the first two hikes of Rs 1,500 per tonne in January and Rs 1,250 per tonne in February. Other companies too are expected to follow suit once JSW increases the price.
?If we see the April-May 2012 rates, the price of flat steel today is at that level but the price of long steel is still less by Rs 3,500 per tonne. However, in this period, the input costs have gone up and there is a scope to increase the prices,? said JSW Steel marketing and commercial director Jayant Acharya.
He said in spite of increase in prices by almost Rs 3,000 per tonne since January, India is still lagging its peers in the international market by almost $200 per tonne, which also justifies a hike in the price. The import equivalent of Europe’s hot rolled coil is at $625 per tonne and the United States is over $700 per tonne. In China, the important equivalent stands at around $570 per tonne.
However, analysts term it as a ?market testing? tactic of JSW as the year is coming to a close and all steel companies would like to achieve their targets. ?Considering current demand scenario in India and the emerging trends of a downward correction in international steel prices, any price hike in India will not be sustainable,? said an analyst with a domestic brokerage.
He said JSW would ?test the waters? to see if a price hike is possible as internationally prices are still high compared with the domestic market, although they are expected to come down slowly.
?Steel mills are optimistic of another round of price increases in March 2014, though we are not sure if such increases will be accepted by the markets. We expect softening in domestic steel prices in the course of next three months,? said analysts with domestic brokerage Kotak Institutional Equities.
Analysts point out three factors that may lead the trend: First, expectation of global steel prices softening due to a fall in raw material prices, scrap prices and weak demand in China; second, narrowing gap between imported steel prices and domestic steel price; and thirdly, India turning to a net steel exporter, which could translate into probable discount to import parity in a sluggish domestic demand environment.
According to a Bloomberg report quoting international brokerage Macquarie, steel demand outlook already reflects slowing property in China, with steel and metals demand in property construction seen rising 4% y-o-y in 2014 against 6% in 2013.
?Usually, the fourth quarter is a good one for steel companies but considering the international market, especially China, it looks like Q1 and Q2 of the next fiscal will be weak,? said Goutam Chakraborty, analyst, institutional research, Emkay Global Financial Services.
He said if the international prices have started falling and if they fall by almost $10 per tonne, it will be difficult for companies to sustain at these price levels.
However, the benchmark long product market in India, Mandi Gobindgarh in Punjab, has seen a rise in per tonne rates of long products since January.
?Since January, the prices of various categories of long products in the mandi have risen by almost Rs 2,000 per tonne. This has led to companies going for a hike in their monthly contracts,? said Ramesh Iyer, vice president, product development, NCDEX.
Iyer said the increase is more structural in nature than a fundamental one and may come down soon. According to the Kotak report, domestic steel demand continues to be sluggish with 0.5% y-o-y growth to 61 million tonnes over the April-Jan 2014 period, though steel production increased by 3.7% y-o-y. The mismatch was accommodated by 31% y-o-y fall in imports to 4.6 million tonnes and 16% y-o-y growth in exports to 4.7 million tonnes, leading to India now becoming a net exporter of steel.
