The Hindu Business Line : End-users to gain from Tata Steel price cuts

THE price cuts on steel products announced by Tata Steel, followed similarly, if not matched, by some of the other steel manufacturers is likely to cool down the raging prices of many downstream steel products and reduce costs for end-user segments, albeit only marginally.

However, compared to the other smaller steel manufacturers, Tata Steel's reduction in prices by Rs 2,000 per tonne on all its products is a strategic move that will eventually benefit both the company and its customers, especially for its branded long steel products.

Since, the cut in prices will essentially affect the ruling rates in the spot market for long products, it could have an anti-inflationary effect from the end-user's perspective.

Most long products' users in the individual and housing segments shop for construction grade steel in the spot market and this is the segment that is affected most by the rising prices of steel. Corporate users are usually insulated from the price swings in the spot market since they enter into long-term price contracts with steel manufacturers. Therefore, only the cut in prices of long products, particularly grades that find application in housing, will help ease cost pressures for the individual end-user. Price reduction for flat products, which find application in the automobile industry, consumer durables and other appliances segments, will not have a significant anti-inflationary impact. As a result, though other steel manufacturers have followed Tata Steel in announcing cuts in prices of their steel products, with the exception of Steel Authority of India, which has a big long products portfolio, the announcements may not have a similar beneficial effect on end-user costs.

Given the extent of rise in steel prices that has been witnessed over the last two years and the continued rise in prices of other inputs for the key housing and automobile segments, the recent cut in prices will only be marginally anti-inflationary.