The Hindu Business Line : As global iron prices fall — Domestic steel prices likely to soften

AFTER a prolonged bull run in steel prices for a little over two years, domestic steel prices are all set to soften from the second quarter following softening of iron ore prices globally.

Faced with global over supply, Indian iron ore exporters have been forced to cut prices for export of 63.5 per cent grade iron ores to China from about $97 per tonne to $85 per tonne last week.

Meanwhile, hot-rolled steel prices in the European and the US market have come down by an average of around $30 per tonne in the last few weeks.

During calendar 2005, the top three iron ore producers in the world have announced major increases in production. This would add to the 37 million tonnes (mt) of iron ore stock that has currently piled up at various Chinese ports.

According to announcements made till date, BHP Billiton, which produced 110 mt in 2004, will further improve to 145 mt this year. Similarly, Rio Tinto Ltd, which produced 120 mt million tonnes in 2003, will increase its production to 171 mt by 2006 spread evenly over the three-year period.

Also, the Brazilian Companhia Vale do Rio Doce , which is the largest mineral producer in the world, will grow by more than 40 mt during the current year.

But, according to industry observers, the recent steps initiated by the Chinese Government that becomes effective from May would be the major dampener for iron ore and consequently steel prices globally.

On Wednesday, at the executive meeting of the State Council of China, the Prime Minister, Mr Wen Jiabao, underscored the necessity of strict control of China's economy and of improving the country's industrial structure to better cope with the rising cost of iron ore. Already, Chinese authorities have announced that a license system for the importation of iron ores will be implemented from May 1 in order to limit iron ore imports.

In addition, the State Council has put in place measures to cancel the tax rebates for the exports of steel billets and steel ingots so as to control the imports and restrain the blindly expanding steel and iron production capacity. The Chinese State Council's move follows setting up of a working committee on the Importation of Iron Ores by the China Iron and Steel Association last month.

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