A double whammy for steel firms

Export earnings to erode on rupee appreciation, may cut product prices

Domestic steel companies fear the US Federal Reserve's decision to keep its bond-buying programme intact would result in a double whammy to their earnings, according to industry officials and analysts. The rupee, which appreciated against the dollar of late, is expected to result in a fall in these companies' export earnings and force them to cut steel prices in October.

“The fluctuation in the currency is too strong,” a Rashtriya Ispat Nigam Ltd (RINL) official told Business Standard. “The industry can’t take this kind of fluctuation.”

The recent depreciation of the rupee had prompted steel producers to increase exports. As the domestic steel industry primarily relies on imports of coking coal, the rupee's appreciation is expected help them on this front, reducing their costs. Most steel companies might have to cut prices, as their input costs would fall, said Giriraj Daga, analyst, Nirmal Bang Institutional Securities. As domestic demand was weak, steel companies might offer better discounts, said Bhavesh Chouhan, senior research analyst, Angel Broking. However, companies are waiting for the rupee to stabilise before reducing prices.

“No chance of reducing product prices right now,” said the Rashtriya Ispat Nigam source. “There is no demand pull in the market and we can’t immediately reduce prices,” he said.

 

“If the rupee continues to be at current levels till the end of month then may be price cut can be considered,” he said. “Currently, it is the wait-and-watch period for steel companies,” he added.