The Hindu Business Line : No immediate impact on global steel prices seen

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Mumbai Jan. 31 Tata Steel's takeover of Anglo-Dutch steelmaker Corus group is unlikely to have any significant immediate impact on global steel prices. However, the deal will give the Tatas access to new market segments and new products even as consolidation would bring economies of scale, said analysts.

Corus is Europe's second largest and the world's ninth largest steelmaker with capacity of 20.8 million tonnes a year. The company is not exactly known for cost efficiency. Tata Steel is India's second largest steelmaker with finished steel capacity of 5 million tonnes a year. Tata Steel is known for its low production costs.

Steel prices, of late, had begun to show signs of firming after months of weakness because of demand slowdown that forced many US steelmakers to cut down production. The production cuts of last year seem to have had a beneficial effect on the prices.

Steel prices had been on the downtrend since early 2006 due to production exceeding demand, especially in the US and China. China's 2006 crude steel production was an estimated 450 million tonnes. Incidentally, China started dumping steel in the US, which further pulled down prices.

The effect of the Corus takeover on the domestic market is likely to be neutral, with the domestic industry unlikely to experience any impact anytime soon, said analysts. For the Tatas, however, the acquisition makes strategic business sense as it advances their global aspirations.

Domestic prices up

Meanwhile, in the domestic market, long steel prices in Ghaziabad, after remaining low in the third quarter of financial year 2006-07, have moved up from Rs 19,500 per tonne in December 2006 to Rs 20,000 in January; while in Mumbai prices rose from Rs 19,800 per tonne to Rs 20,400 over the same period.

Confirming that domestic steel prices remain firm, Mr Seshagiri Rao MVS, Director, JSW Steel Ltd, said: "We are not planning any price reduction in the January-March quarter. On the contrary, if HR coil prices go beyond $600 per tonne in the international markets, we may revise prices upwards".

European HR coil prices, which had remained subdued at $552-$580 per tonne, are expected to rise to $650 per tonne by April 2007. "Steel prices have started moving up from December as traders are stocking up in anticipation of demand from the US and European markets. The curbs on Chinese exports are also adding to the bullish sentiments in steel prices," said Mr Ramesh Aiyer, Vice-President, NCDEX.

China scenario

China recently imposed a 10 per cent export tax on steel semis export. The attractive domestic prices in China amidst rising demand have also discouraged Chinese producers from looking to export to other countries.

"Chinese domestic prices have gone up from $480 per tonne to $535 in January. China's exports have seen a slowdown, to 4 million tonnes per month," said Mr Rao.

Production from China has been impacting global steel prices. In calendar year 2006, China produced 450 million tonnes of steel while exports stood at 124.5 million tonnes versus 114.5 million tonnes in 2005. "The consolidation among global steel companies may gain momentum post the Tata-Corus deal. Steel companies in China are also exploring mergers," said Mr Aiyer.

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