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Steelworld Analysis

      Happy days are here again for steel producers. Close on the heels of a price hike in flat steel products, which form the main input for other value-added segments, prices in the remaining areas of the sector are also beginning to look up. It is as the managing director of a private steel mill put it, "The industry is starting to get the mood prior to 1998, when prices were looking up and demand too had firmed." In flat steel, prices of hot rolled coils, made majorly by five main producers in the country like SAIL, Tisco, Essar Steel, Jindal Vijaynagar and Ispat Industries, have all seen an increase. The upward revision in prices, initiated at the start of the new financial year, has also witnessed for the first time a five-month consecutive bull run. "Save perhaps in August, when some producers did not raise prices, it has been smooth run till now," a Tisco official said. Going by recent reports, it is likely that the trend will continue. European steel mills are supposed to have increased prices of their HR coils by $20 per tonne, due to a firming up in demand and also because, the OECD initiative in rationalising production could be finally paying off.

      This has led many in the domestic industry to anticipate another round of hikes. In fact, those in trading circuit have said that by December, prices could go up by at least Rs 750 per tonne. While all this was expected, especially as flat steel prices have been looking up since April this year, the most surprising element has been in the relatively untouched segment, alloy steel. A hike is being proposed in alloy steel in the range of Rs 1,500 to Rs 2,500 per tonne. This has been made possible due to a rise in the price of inputs like coke. "It is akin to a cycle," an official said. Rise in steel prices has led coke and iron ore producers to increase prices. Again with a firming up in inputs, alloy steel producers are going in for a hike. The Indian alloy steel, like its European and US counterparts, has always remained under the gaze of automobile and automotive industry, who are its biggest consumers. So any move to revise prices had been stonewalled by these end user industries. In fact, industry sources said that alloy steel prices had remained unchanged till September, when they were finally able to convince the auto players on the need to increase prices. And if the players are to be believed, then a second round of price revision is on the cards. This has been due to the two main reasons. First, a general feeling of well being and improved demand in the auto and automotive sectors. Second is the rise in input costs.

      The automobile and automotive industries have seen a revival of sorts with a general pickup in the heavy and multi-utility vehicles and hence a turnaround in the component sector. This apart there has also been an increase in the prices of inputs like coke, sponge iron, scrap and power tariffs, the main factors of production for those making steel through the secondary route. Imported scrap, which is one of the main ingredients in the Electric Arc Furnace (EAF) route, has gone up to $145 per tonne, from $118 per tonne. Then metcoke, which is also imported has gone up to $105 per tonne, as against $94 per tonne two years back. Sponge iron, another major input, has seen a dramatic surge in price, to Rs 6,150 per tonne, a rise of over Rs 1,000 per tonne to levels six months back. All these factors have forced most auto and automotive players to allow alloy steel makers to raise their rates. The reason for a rise in the price of imported metcoke is more due to the fact that availability from one of the main suppliers, China, has come down sharply. "The main cause is that investigations have currently been launched to determine the extent of safety norms practised by China. This has led to reduced availability and hence increased prices. China is of late, increasingly making itself open to western inspection after its entry into the WTO.

      For alloy steel, there are nearly 160 medium/mini-steel plants, manufacturers, exporters and suppliers. A third tier of about 550 small units use arc/induction furnaces to melt steel scrap. They produce a total of 1.5 million tonnes of steel castings and other items.

      However, as an official says, the main ills of the alloy steel is overcapacity. Even when the user industry performs very well, alloy steel producers do not have any pricing power. The total installed capacity of alloy steel is 4 million tonnes as compared to the demand of a mere 1.5 million tonnes. This excess capacity resulted in price undercutting, which adversely affected all alloy steel producers. The alloy steel sector had been largely affected due to a slowdown in the Indian economy. Demand from commercial vehicles segment was low, which in turn affected the forging industry. Low capacity utilisation by producers also affected some alloy steel producers. Main producers here include Kalyani Steel, Mukand Steel, Mahindra Ugine, Shah Alloys, Aarti Steel and others. Galvanised steel, the cash rich portion of the steel industry, has been increasing its prices immediately after all HR price revisions. In fact, galvanised steel prices are the first off the ground after HR prices are raised. Cold-rolled steel products on the other hand, face a time lag of about two months. It has been CR which is currently facing the flak, for its inability to revise prices immediately. Long steel prices on the other hand, are the most steady of all. For the past two years, long steel prices have exhibited a stable price front, without any major fluctuations.

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