Cautious rise possible in steel prices

Price revisions are seen happening with caution

A small increase in home steel prices is likely in the coming months, with the government having imposed a 20 per cent ‘safeguard duty’ on certain categories of import to protect local producers.

The duty was imposed on Monday with immediate effect on hot-rolled flat products of non-alloy and other alloy steel, in coils of a width of 600 mm or more.

“We see a rise of four-five per cent in steel prices,” said Giriraj Daga, senior analyst with SKS Capital & Research.

Initially, the rise could be as small as Rs 500 a tonne and then perhaps producers could take it up by Rs 1,500 a tonne, step by step, said an analyst with a foreign brokerage. Most feel price revisions will happen cautiously, as the duty imposition is only for 200 days.

“If the government finds the duty is leading to easy upward price revisions and in turn causing inflationary pressures, it is likely to abolish the duty after a period of 200 days. This is not something producers would want,” said the analyst with a foreign brokerage.

“The move will bring about a balance in the demand-supply scenario but I don't see it pushing prices higher in the near term,” said Jayant Acharya, director, commercial & marketing, of JSW Steel. “What can immediately happen is stability in the demand-supply situation. Prices will move up gradually but it's difficult to give a timeline for it.”

Analysts were, however, agreed duty imposition would bring down import by at least 60 per cent. Currently, about a million tonnes is coming into the country every month.

Also to be seen if whether exporting countries like China lower their prices. After the earlier import duty rise, of a 2.5 per cent levy, China cut its steel prices by the same amount.

“The safeguard is only on hot-rolled coils. Cold-rolled and tubes are not under any duty. So, imports will continue to hurt the market but perhaps to a lesser extent,” said an analyst.

JSW and Essar, which focus more on flat steel products used in the automobile industry, are going to benefit more from the current safeguard duty than companies like Jindal, more into the long-products segment catering to the construction and infrastructure sections.