Steel companies struggle with over-capacity, may cut prices

There appears to be no let-up from a weak steel market. Producers are contemplating downward price adjustments for July, though some think they can manage.

“We are yet to decide, but may roll over,” said Jayant Acharya, director (sales and marketing), JSW Steel. Another cold-rolled steel producer said prices could be cut by Rs 1,000-2,000 a tonne.

Prices of hot-rolled coil (HRC), a benchmark for flat steel, used by automobile and white goods makers, are Rs 32,000 a tonne, down by Rs 2,000 over the past month.

Excess capacity, coupled with a weak demand, appears to be the triggers. The only way the downward spiral could be stopped was by cutting production, said a producer. “We produced 30 per cent less this month than the previous, but the industry needs to do it,” he said.

India’s production capacity is 60 million tonnes and most companies are at 100 per cent capacity. The global capacity utilisation ratio, however, slightly declined to 82 per cent from 83.4 per cent in April, according to the World Steel Association.

The capacity is not commensurate with the demand. “Monsoons have pulled down the construction sector and for West Asia, Ramzan will kick in,” said an industry representative.

Raw material prices have also moved downwards. India’s largest iron ore producer, NMDC, today decided to offer its customers an additional five per cent discount for the first two quarters.

“This decision was an incentive for steel customers, who are facing volatility in the market,” said Rana Som, chairman and managing director, NMDC.

The move implied that customers would not have to pay more than the provisional price rise by NMDC, effective April 1, for lump ore. “Only for fines (an ore variety), they may have to pay Rs 300 a tonne extra,” said Som. NMDC supplies iron ore to most steel producers that do not have captive mines.

Coke, the other key input material, was also showing signs of weakness. “If raw material prices come down, then we will not face margin pressure to that extent,” said a producer.

However, a surge in imports is hurting. Flat steel imports into India in May was 879,776 tonnes, double the level of a year earlier. The huge import surge into India was particularly witnessed in HR coils and sheets, 3.5 times more than a year earlier.