The Hindu Business Line : `Global steel prices may fall in next 3-4 years'

Future trends
Iron ore prices are expected to rule firm till next year
Capacity bottlenecks to ease world-wide
Profit margins to remain under pressure for steel firms

Cansolin (Goa) , April 10

With capacity being created across the world, global steel prices are expected to take a dip in the next 3-4 years, according to Mr Philip Tomlinson, Director and Managing Consultant of the London headquartered CRU Strategies, a global steel and metal business analysis and consulting company.

"After some near-term strength, we do expect to see steel prices follow a downward trend in the next 3-4 years.

This will follow the easing of capacity bottlenecks across the globe," Mr Tomlinson told Business Line on the sidelines of the Global Steel 2006 conference organised here by Steel RX,

According to him, iron ore prices are expected to rule firm till next year, when mining bottlenecks are expected to ease. The profit margins of steel-makers would continue to remain under pressure.

Focus on consolidation

Mr Tomlinson said it would augur well for steel companies across the globe to focus on consolidation with a view to maintaining an appropriate balance between demand and supply. However, it would be imperative for steel producers to understand their value chain before zeroing in on upstream or downstream consolidation, he said, adding that "the strongest arguments in favour of global consolidation is to incentivise producers to balance capacity and demand better".

On Indian steel companies, Mr Tomlinson said upstream integration into iron ore still looks attractive despite an expected fall in iron ore prices in the medium term.

With regard to downstream integration, he said value-added niche sectors such as castings, engineering and distribution appear to have an increasing potential.

Growing capacity

Indian steel companies would have to put up with the danger of capacity growing faster than demand.

"Those who set up downstream units for value- added niche products would be safe. Those who set up downstream units to subsidise their still production will find the going tough," he said.

Mr Tomlinson said Indian steel companies would do well to focus on long products rather than flats. "This is because the volume falls and growth in long products will be faster in view of the increased spend on infrastructure expected in the years ahead," he said.

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