Steel price cut temporary, market forecast upbeat

Barely a week after the world’s largest steelmaker, ArcelorMittal, had cautioned against rising steel prices, Indian manufacturers have slashed their prices by about two per cent.

“There is actually a supply glut. So, many producers have started building capacity to match the demand in the market,” a cold-rolled steel producer said. The dip in prices was triggered by China’s rate hike. However, the recent price cut is a temporary phenomenon considering China’s declining output and the expected rise in demand.

World Steel Association (WSA) figures support the producer’s statement. World crude steel production for the 66 countries reporting to WSA was 112 million tonnes in September — 0.9 per cent higher than the September 2009 figure.

Steel producers across the globe had ramped up capacity on the back of a strong auto sector and an increasing demand in China. But Beijing’s surprise interest rate hike has led to a slump in global prices by about four per cent.

China’s crude steel production for September 2010 was 47.9 million tonnes, a fall of 5.9 per cent compared to the September 2009 figure.

“China had shut down a lot of obsolete capacity, but now they have restarted most of it. I wouldn’t be surprised if they meet the target production of 650 million tonnes,” a steel producer said.

The situation could, however, be temporary. According to a Deloitte report, the outlook for the metals and mining industry was positive.

“Global finished steel demand is expected to grow robustly from 2009 to 2011, exceeding 10 per cent. Over the last year, spot price of iron ore has nearly doubled, while coking coal prices have also risen significantly,” said the report.

Putting a cap on raw steel prices could, however, translate into shrinking margins for steel producers. However, the steel market was likely to recover in a staggered manner. Large-scale infrastructure projects across the country would also play an important role in keeping the steel demand high.

The demand from the construction sector has manifested in higher prices of long products, with domestic steel majors rolling over prices for the month.