Economy

Steel firms continue to be under stress as prices remain depressed

Debabrata Das New Delhi | Updated on January 20, 2018

bl15_steel price

Weak demand persists; bottomlines of steelmakers likely to be hit

Domestic steel producers could be staring at grim profit and loss statements for the fourth quarter of 2015-16 as they have been unable to raise prices despite government support.

The government levied a safeguard duty of 20 per cent on flat steel products in September 2015 to counter cheap imports. This was extended on March 31 and in addition, a Minimum Import Price was levied on 173 varieties of flat steel products.

Despite this, Steel Authority of India Ltd, Tata Steel, JSW Steel, Essar Steel and others have been unable to raise domestic prices due to tepid demand growth.

“The full impact of the government’s measures against cheaper imports will come into effect over the next six months. We hope that demand also revives in that period. But, primarily this is the reason why we have been asking for an anti-dumping duty as well on steel imports. We are grateful that the government has finally begun investigations on this,” an industry official told BusinessLine.

According to industry officials, average prices flat steel products on April 1 was around ₹38,537 per tonne, almost 4.1 per cent lower than ₹40,258 per tonne on September 1, 2015. Even long products, which are insulated from cheaper imports, have faced a slump in prices from last year’s levels. On April 1, average long product prices were 8.1 per cent lower at ₹32,854 per tonne compared with ₹35,753 per tonne on September 1, 2015.

Analysts estimate that the pressure on domestic steel prices is unlikely to ease anytime soon.

India Ratings & Research’s Managing Director & Chief Analytical Officer Ananda Bhoumik said in a note earlier this week, “Ind-Ra expects the steep fall in steel product prices to affect the debt re-paying abilities of steel producers during fiscal 2016-17. Since the fall in global demand, and Chinese excess capacity are unlikely to moderate in the near term, steel price recovery may only be muted over fiscal 2016-17.”

“Prices are about 20 per cent lower than the average for fiscal 2014-15 and domestic steel capacity is expected to increase by about 15 million tonne. We expect that further price hikes will be constrained in the near term given the increased competition among domestic producers to maintain capacity utilisation rates,” an analyst with a Mumbai-based foreign brokerage firm said.

Published on April 15, 2016

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