STEEL PRICES AND WORLD STEEL INDUSTRY

Steel prices may fall by Rs 1,000/tn in July
Published on: July 10, 2010 at 04:50

NEW DELHI (Commodity Online): India’s domestic steel prices may come down by Rs 1,000 a tonne in July due to sluggish demand mainly from the construction and infrastructure space.

According to steel secretary Atul Chaturvedi, in July, steel prices are likely to fall by Rs 1,000 a tonne mainly due to lack of demand from infrastructure firms amid the monsoon season.

Domestic steel makers are yet to announce any price changes of their products. High cost of raw material, fall in demand and cheaper global rates are putting pressure on domestic steel prices and analysts say the trend could well hit the margins of domestic companies in the current quarter.

The July-September period will see erosion of profitability of steel companies as the gloomy demand scenario would prevent them from hiking rates amid high input cost pressure. He described the second quarter as the weakest link for the industry in the current fiscal.

Steel firms have seen prices coming down by up to Rs 6,000 a tonne to around Rs 27,000-33,000 a tonne in past few months as construction work slowed down ahead of monsoon.

Prices of raw material, coking coal and iron ore, are at present ruling around 50-100 per cent high. Spot iron ore prices are ruling at around USD 100-115 a tonne and coking coal prices at around USD 185 a tonne level.

Anticipating a hit on their bottomline, steel makers like Tata Steel, Essar Steel and JSW Steel are looking at increasing price in some segments in the current month.

Tata Steel, the world’s sixth largest steel producer, hinted at increasing the prices of steel. The company said the rise in the input costs would be passed on to the customers.

Globally, raw material prices have gone up. If producers don’t pass on the price increase, their margins will be affected. We are hoping that we’ll pass on the increase in raw material cost.

Though the demand for steel both in the domestic and international markets is growing, the cheap imports from China, which has overcapacity, continues to be a challenge for Indian firms.

Tata Steel said there are positive trends in the international markets such as the U.S. and Europe. China has overcapacity and we anticipate that the cheap imports will continue. It will have an impact on the domestic market.

Recently, the state-run National Mineral Development Corporation (NMDC) has increased the prices of iron ore by 11 per cent based on the international market trends. The company has indicated that prices would be revised on a quarterly basis

World Steel Industry :
Steel, the recycled material is one of the top products in the manufacturing sector of the world.
The Asian countries have their respective dominance in the production of the steel all over the world. India being one among the fastest growing economies of the world has been considered as one of the potential global steel hub internationally. Over the years, particularly after the adoption of the liberalization policies all over the world, the World steel industry is growing very fast.

Steel Industry is a booming industry in the whole world. The increasing demand for it was mainly generated by the development projects that has been going on along the world, especially the infrastructural works and real estate projects that has been on the boom around the developing countries. Steel Industry was till recently dominated by the United Sates of America but this scenario is changing with a rapid pace with the Indian steel companies on an acquisition spree. In the last one year, the world has seen two big M&A deals to take place :-

• The Mittal Steel, listed in Holland, has acquired the world's largest steel company called Arcelor Steel to become the world's largest producer of Steel named Arcelor-Mittal.

• Tata Steel of India or TISCO (as listed in BSE) has acquired the world's fifth largest steel company, Corus, with the highest ever stock price.

It has been observed that Steel Industry has grown tremendously in the last one and a half decade with a strong financial condition. The increasing needs of steel by the developing countries for its infrastructural projects has pushed the companies in this industry near their operative capacity.

The most significant growth that can be seen in the Steel Industry has been observed during the period 1960 to 1974 when the consumption of steel around the whole world doubled. Between these years, the rate at which the Steel Industry grew has been recorded to be 5.5 %. This roaring market saw a phase of deceleration from the year 1975 which continued till 1982. After this period, the continuous fall slowed down and again started its upward movement from the early 1990s.

Steel Industry is becoming more and more competitive with every passing day. During the period 1960s to late 1980s, the steel market used to be dominated by OECD (Organization for Economic Cooperation and Development) countries. But with the fast emergence of developing countries like China, India and South Korea in this sector has led to slipping market share of OECD countries. The balance of trade line is also tilting towards these countries.

The main demand creators for Steel Industry are Automobile industry, Construction Industry, Infrastructure Industry, Oil and Gas Industry, and Container Industry.

New innovations are also taking place in Steel Industry for cost minimization and at the same time production maximization. Some of the cutting edge technologies that are being implemented in this industry are thin-slab casting, making of steel through the use of electric furnace, vacuum degassing, etc.

The Steel Industry has enough potential to grow at a much accelerated pace in the coming future due to the continuity of the developmental projects around the world. This industry is at present working near its productive capacity which needs to be increased with increasing demand.

World steel industry and Crude Steel Production
The following table gives a clear picture upon the major crude steel producers in the world as of the year 2004.

Country Crude Steel Production (mtpa)
China 272.5
Japan 112.7
United State 98.9
Russia 65.6
South Korea 47.5
F.R.Germany 46.4
Ukraine 38.7
Brazil 32.9
India 32.6
Italy 28.4
In the year 2004, the global steel production has made a record level by crossing the 1000 million tones. Among the top producers in the steel production, China ranked 1 in the world.
Production of steel in the 25 European Union countries was at 16.3 mmt in January 2005. Production in Italy increased by 11.5 per cent in comparison to the same month in 2004. Italy produced 2.5 mmt of crude steel in January 2005. Austria produced 646,000 metric tones.
In Russia it increased by 4.0 per cent to reach at 5.5 mmt in January.
In case of the North America region particularly in it was 1.5 mmt of crude steel in January 2005, up by 8.0 per cent compared to the same month in 2004. Production in the United States was 8.3 mmt.
Brazil had produced 2.6 mmt of crude steel in January 2005. In South America region it was 3.7 mmt for January 2005.

According to rating made by the " World Steel Dynamics", Indian HR Products are categorized in the Tier II category quality of products. Both EU and Japan have ranked the top. USA and South Korea comes as like India.