Steel to pick up by June quarter

Industry likely to maintian margins.

Though international steel prices have dropped by 60 per cent and domestic by 25 per cent from their peaks, margins for the next financial year are likely to be at the same levels as that in the current year, which has also seen prices move north.

Steel prices have halved across products, and so have raw material prices. Coking coal contracts sealed at $305 a tonne last year, which was a 200 per cent increase over the previous year, are set to fall as spot prices are hovering around $240 a tonne. Iron ore fines, which were selling at $150 a tonne in June-July, are now available for $57 a tonne. After the battering since September, finally there are some positive signs for the steel sector. Iron ore prices have moved up by 10 per cent in the last fortnight, indicating a demand pick-up in steel.

President of the Federation of Indian Mineral Industries (FIMI) Rahul Baldota said the price appreciation was due to a combination of factors. Some of the Chinese steel mills had reopened and also stocks had depleted. International reports indicate that stocks at Chinese ports were lower by 3 million tonnes than levels in mid-November.

“The $586 billion stimulus package announced by China is expected to boost sentiments,” said Baldota. There are other indicators as well. Freight rates to China have moved up. Also, scrap, a raw material for steel-making, has moved up from $150 a tonne to $250 a tonne in the past one month.

Ankit Miglani, director-commercial, Uttam Galva Steels, said, demand-wise, the market had bottomed out. “Early January, buyers are likely to review stocks and demand pick-up will happen in February,” he said.

According to Miglani, seasonally, the market was at the bottom. Uttam Galva is one of the largest cold-rolled and galvanised manufacturers in western India. Cold-rolled and galvanised prices have dropped 60 per cent from June-July, said Miglani.

Essar Steel chief executive officer Jatinder Mehra expects a demand recovery in the first quarter of the next financial year. “Right now, the read demand cannot be measured because people are liquidating inventories, it will be known next year,” he said. However, even if demand picks up from February, margins would be impacted till raw material contracts are negotiated.

Pawan Burde, an analyst with Angel Broking, said for some companies the current contract would end in June-July. “Unless they renegotiate for an early end of the current contract, margins would be impacted in the first half,” he explained.