The Hindu Business Line : `Consolidation in global steel sector imminent'

GLOBAL steel industry is likely to witness mergers and takeovers of non-integrated players, as their operational profitability is under tremendous pressure from rising prices of raw materials such as iron ore and coking coal.

Ingres, a division of the rating agency, ICRA Ltd, is of the view that besides the prices of input materials, freight has also become costlier in recent times.

"This may affect the performance of the non-integrated players. Accordingly, one may see some capacity rationalisation globally," Ingres has stated in its recent sectoral report on the steel industry.

It is, however, accepted that the fundamentals of the steel industry, in general, appear to be improving from the short- to medium-term.

The rising steel prices, both in the overseas and domestic market, is playing an important role, says the report.

It is felt that international steel prices would continue to remain firm for the time being. However, it is apprehended that in the long run the prices might suffer as supply of steel items in the world market may exceed demand.

"International steel prices (and hence the domestic steel prices) in the export markets are expected to be sustained in the near future, till the new capacities (particularly those emanating in China) further deteriorate the demand-supply balance," it stated.

Regarding the performance of the Indian steel companies, the ICRA wing has advised them to try and improve their operational profitability to withstand pressure on steel prices.

"This is expected through various measures such as implementing cost control, enhancement of capacity utilisation, improvement of operational efficiencies, altering the product mix for maximising share of value-added products and targeting niche markets," Ingres has said.

Meanwhile, in the first quarter of 2004-05, the Indian steel industry witnessed a 2.8 per cent growth in production and 5.1 per cent growth in consumption compared to the corresponding quarter in 2003-04.

"Growth recorded in the production, and the apparent consumption in the non-flat segment were 3.7 per cent and 4.2 per cent respectively. The corresponding figures for the flat segment were 2.3 per cent and six per cent respectively," it said.

Indian steel exports, however, suffered in the first quarter of 2004-05. It dropped by 21.5 per cent. While exports in the non-flat segment were down by 46.9 per cent, in the flat segment, it suffered an 18.1 per cent fall.

On the other hand, steel imports grew by 9.6 per cent with the flat segment reporting a two per cent growth.