Saturday, Jan 03, 2004
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By Ramnath Subbu
While the State-owned Steel Authority of India (SAIL) has increased its price by Rs. 1,600 a tonne, other players like Tata Steel, Essar Steel, Ispat and Jindal Vijaynagar have increased prices by Rs. 1,400 a tonne.
According to an industry source, "Steel makers are caught in a cleft between spiralling input costs on the one side and pressure from the steel users on the other. Input costs have risen between 14 per cent and 17 per cent from November and December 2003".
In fact, coke prices were up 23 per cent at Rs. 1,350 a tonne against Rs. 1,100, scrap prices rose 14 per cent to Rs. 1,250 from Rs. 1,100 a tonne and sponge iron prices rose 17 per cent to Rs. 1,150 from Rs. 9,500 to a tonne. Besides, the U.S. has imposed over 30 per cent duty on export of scrap from the U.S. thereby restricting global availability. The rise in price of HRC by 7 per cent will absorb over 50 per cent of the rise in input costs.
"The rise in HR coil prices in India is marginal compared to other global markets, for example, in the U.S. and European markets, it has gone up by 10-12 per cent. Also, even after the hike in prices, we are still cheaper than the landed cost of HRC, which is Rs. 22,500 a tonne. It was expected that the lifting of Sec. 201 would lead to stabilisation of global steel prices. On the contrary, steel prices continue to remain firm," the source said.
The rise in input costs has been attributed to reduced availability of raw material in relation to increasing demand. The coke and iron ore mining capacity have not kept pace with the sudden rise in demand. Since the last three years, steel industry was under recession with no major new investments having taken place in the sector excepting China.
In fact, global prices rose from $180 a tonne in November 2001 to $350 a tonne by February 2003 and now quote at $320 a tonne level. China's consumption increased at a 15 per cent clip between 1997 and 2002 (105 million tonnes to 210 million tonnes) against the production of 190 million tonnes. Its imports of flats were up at about 22 million tonnes in 2002 and is expected to be 28-29 million tonnes in 2003 and 2004.
"This trend will sustain in spite of capacity addition of about 40 million tonnes in the next two years. A significant increase in Chinese production would be restricted by the limited availability of inputs such as iron ore, coking coal, scrap and power," said Mukesh Agarwal, Head, Corporate Ratings, Crisil.
In the medium term, domestic steel demand is expected to grow by about 6-7 per cent in line with the gross domestic product (GDP).
Capacities are unlikely to increase significantly, leading to better demand-supply dynamics and more stable price levels than in the past. "Going forward, stable prices and improving operating efficiencies would lead to higher operating profits for fully integrated players like Tata Steel, SAIL and JVSL.
For other players, gains from higher steel prices will be partly offset by increasing input costs," said Mr. Agarwal.
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