Steel to get cheaper in coming months: Fitch

Steel prices, particularly those of long products, are likely to come down in coming months as demand softens with the onset of the monsoon, rating agency Fitch said today.

“Fitch believes steel prices may soften in July through September 2012 as demand for long steel will fall with the onset of monsoons and the consequent slowdown in construction activity,” it said in a statement.

The “abnormal” rise in prices long products, used in construction sector, had earlier prompted the steel ministry to discuss the issue with steel-makers. Steel companies had stated that majority of long products are produced by secondary producers and their output was hampered by the scarcity of raw material and power-related problems leading to a price rise. Fitch also said rising production cost and subdued demand may squeeze profit margins of domestic steel manufacturers, putting pressure on margin in the first half of the current year.

“This (pressure in margin) is attributed to persistent increases in the cost of steel production and steel producers' limited ability to pass on higher costs due to subdued demand from end-user industries given the prevailing unfavourable macro-economic environment," it said.

The price hike, if any, is likely to start from festival season beginning October 2012. However, the risk of regulatory intervention on prices, given the government's priority to tackle inflation, continues to exist, it said.

Fitch said the positive impact of softer key raw material (iron ore and coking coal) prices globally has been offset by depreciating rupee. "...The 10 per cent price hike in May 2012 by NMDC Ltd, India's largest iron ore miner, would increase the cost of producing steel by 3-5 per cent and thus adversely impact steel producers that are not vertically integrated," it said. The price hike by NMDC was preceded by Indian Railways increasing the freight for iron ore import by 20 per cent, which will shave off around 2-4 per cent from the EBITDA of steel producers, it said.