The Hindu Business Line : `Steel prices may soften on excess Chinese output'

Mr Mehra believes that excess steel production in China may not put downward pressure on global steel prices. On the contrary, Mr Manser believes that the steel prices will soften due to excess production coming out of China.

Excerpts from CNBC-TV18's exclusive interview with Mr J. Mehra and Mr Roger Manser:

Have you noticed any hike in global steel prices over the past two months and has that been effective in allowing you to hike prices or has that been nullified by the dollar?

Mr Mehra: There has been a price rise in China and in the rest of the world prices have been firming up.

There have been pricing issues in India on account of the dollar depreciation and rupee appreciation, and some limitation in increasing domestic prices.

What has been a percentage increase in global prices over the past two months and how do you see these prices shaping up in the next six months?

Mr Mehra: In the last two months, there has been an increase in prices wherever the base price was in the region of $15-20.

Going forward, I think prices will remain firm. There may be a slight increase in prices but overall I see 2007 as a very good year for steel prices.

What is the call right now on steel prices? There were reports suggesting that the government may actually curb exports of China, in light of that where do you see steel prices heading for the rest of 2007?

Mr Manser: Prices have increased significantly. We see prices in North America wavering at the moment. In the last two weeks, there has been a slight increase in North European prices.

I see prices in the developed world steadying and probably falling towards the end of this year.

Could you give us a number?

Mr Manser: It depends on the product. Current prices are over $500 for HRC exports, which could go below $500. This is due to excess steel production coming out of China. I see stock levels in Northern Europe building up over the Q3 period and I am not too optimistic towards the end of the year.

We have got a month or two of positive growth in prices and, thereafter, there could be some weakness as we go into the end of Q3 and Q4.

Mr Manser was just telling us that he is expecting a softening of prices in the global steel markets. If that indeed happens and with what's happening to the rupee, would Essar have to cut steel prices?

Mr Mehra: I do not agree with Mr Manser. His theory is built on the basis that there is an excess steel capacity in China, which may destabilise the market. The Chinese government is taking a lot of steps to cut off this excess. About 120 million tonne of capacity is likely to shaved off over the next one or two years in China.

They have placed curbs on export and this might result in export quotas.

The rest of the markets are not likely to get affected because of China.

The steps been taken by the Chinese government are good enough to take care of prices within China.

Globally, steel growth remains more or less the same at what it was in 2004. I believe that prices will remain firm and there is no likelihood of prices falling in the rest of the year.