Ups and downs in the market and the absence of pricing power puts a question mark over India’s plan to achieve 300 million tonne steel production by 2025 and to make the country the second largest producer of steel.
The absence of pricing power in steel industry unlike the highly consolidated coking coal field has remained a matter of serious concern. The prolonged uncertainty in the market and lack of demand has failed not much increase in capacity addition.
Pricing power of an industry is critical for its growth and profitability depends on its ability to consolidate. Steel sector be it in India or world is highly fragmented due to which it lacks pricing power.
Big players like Arcelor Mittal, Hebei in China, Nippon in Japan, Posco in South Korea and Nucor in USA account for less than five to seven per cent share in the market. SAIL and JSW command not more than 12-13 per cent of market share in India. Lack of pricing power leaves the products totally market-driven.
Steel industry lacks bargaining power in procurement of raw material i.e. iron ore and coal. Raw material security has remained a major worry for city-based Rashtriya Ispat Nigam Limited, the corporate entity of Visakhapatnam Steel Plant.
With the prices not firming up due to General Elections and market slump, the steel industry, experts say is undergoing a difficult phase. Industry sources say out of total production, 55 per cent is of flat products and 45 per cent long products. While in flat products market,
SAIL, JSW and Tata are the leading players, in long products, 74 per cent market share is held by the secondary producers.
“This makes the long products pricing further more vulnerable. From 2012, long products prices have started coming down substantially by Rs.7,000 to Rs.8,000 per tonne in a year i.e. every month, it was reduction in prices offered by main, major and secondary producers in terms of incentives/discounts/rewards amounting to Rs.4,000 to Rs.5,000 per tonne,” a RINL official told The Hindu.
To control inventory, almost all the major producers are resorting to price war by offering discounts.