News Room - Steel Industry

Posted on 11 Aug 2008

Steel prices to fall by $100/tn in coming quarters

Nitin Johri, CFO, Bhushan Steel and Strips, believes that there is no pressure on demand, He remains positive in the near term. The coking coal prices likely to soften in the coming quarters, he said. According to Johri, the steel prices may fall by USD 100 per tonne in the coming quarters. 

Andrew Goldwin of Steel Business Briefing, SBB feels that the price rise is driven by supply side constraints. He expects steel prices to cool off by USD 100-150 per tonne in the next quarter. Goodwin sees steel prices cooling ahead. a€?We are starting to see fairly big drops from China; say down about 5-10% in China. North Europe is still holding up for now but Southern Europe is dropping off, maybe pushing 10% and US is currently flat. But given that prices have risen so much, we do think that this could be a turning point for the US; prices could drop there probably more so than in Europe - maybe up to 20% in the US.a€?

Johri said that his companya€?s price increase depends upon the HR (hot rolled coil) manufacturers because HR is the basic raw material for them. a€?There are some doubts in the minds of the manufacturers. I see the news today that government is now taking the right step; that they want to cap the iron ore prices. If that is done then I think there would not be any need for the increase in the prices. Secondly, now international prices have also started softening a little bit.a€?

However, Johri is not sure about the percentage by which HR makers will raise their prices. a€?Steel Authority of India Ltd (SAIL) and Tata Steel who have not increased their prices in last three months and there are other private players like Ispat or Essar who have increased their prices. So it all depends on whether other people are increasing, upon the overall pricing scenario in the international market. We are still slightly lower than the international prices and now the international prices have started to softening.a€?

Goodwin said, a€?We certainly are seeing steel prices now starting to cool along with other commodities. It is difficult to say at the moment whether this is just a factor of summer doldrums, just slower demand from Europe and Middle East over the summer period or whether this is going to be something structural that takes a longer-term effect.a€? He feels that that up until now price rises have been driven from supply side factors. a€?Global shortage of steel has pushed prices up continually. We have seen very little sign of this supply side constraints being removed and so we would expect that prices may fall for the next quarter and maybe USD 100 is about right and could go up to maybe USD 150. The longer-term picture is that this would probably just be correction and prices will probably start to pick up again towards the end of the year,a€? he said.

On dip in steel prices, Goodwin said, a€?One quarter we are looking it down maybe USD 100-150 per tonne. Two quarters ahead probably we will see some of that being covered if not all of it. Over the next year, I wouldna€?t be surprised if we start to see things cooling off a bit more next year as more supply seems to be coming on, certainly scrap prices should be easing a bit and this will allow Electric arc furnace (EAF) producers maybe to ramp up production a bit more. So maybe 2009 we could see things starting to cool a bit.a€?

Vishal Agarwal, MD of Visa Steel informed that in their company, the pig iron business is back on stream, the furnace was taken down for relining. a€?So we didna€?t have production from that in Q1 but Q2 we should get that. The coke and ferrochrome business continues to remain quite robust business for us. In Q1 we had a significant increase from Rs 72 crore to Rs 255 crore in the sales and profit after tax (PAT) grew from Rs 5 crore to about Rs 48.5 crore.a€?

Agarwal said, a€?We have to separate the commodities with regard to oil, with regard to non-ferrous, with regard to agri products and steel products. If you look at the iron and steel products, I think clearly there has been a significant increase in iron ore and coking coal prices. That has resulted in metallic prices and steel prices being extremely firm. So if I look at the outlook for this financial year, I do not see any softening happening in the prices for the iron and steel products.a€?

On Visa Steela€?s aggressive plans in terms of backward integration both on iron ore, coal and even the coal front, Agarwal said, a€?We have a 54 million tonne block of coal in Orissa, which we hope to develop and benefits from that should probably accrue from FY10-FY11 onwards. We have all the metallic in place now with our pig iron plant, the coke oven plant, the ferrochrome plant, the sponge iron plant and the captive power plant. With these metallic in place, we have healthy revenue and profitability in the coming financial year. We are integrating into half a million tonne special in stainless steel plant, which will be one of the largest facilities in the country, which we expect to achieve by March 2010.a€?