Following the imposition of a minimum import price (MIP) on a range of steel products last week, leading domestic primary steel producers such as JSW Steel, Essar Steel and Jindal Steel & Power have raised product prices by up to 4% effective February 8, as per information available with ISMW.
Some of these companies have hinted at a gradual but marginal price hike, going forward, as reported by ISMW in earlier editions.
Industry sources said JSW has raised prices by less than 4% in the retail segment for both flat and long products. The company is in long-term contracts with original equipment manufacturers (OEM) and it is not possible to raise prices for these customers.
On February 5, the government had announced an MIP on 173 steel products to curb dumping of cheap steel by countries like China, Russia, Japan and South Korea.
Domestic steel companies had been selling products at distressed prices owing to cheap imports that have flooded the market.
Steel prices in India have fallen by over Rs 8,000 per ton over the last year, severely impacting the operations of steel companies. Though the government has fixed the MIP at $445 per ton for hot-rolled, keeping in mind interests of customers, we have increased prices by 4-5% only, another industry source said.
Steel Authority of India Ltd (SAIL) said it was yet to decide on the price hike. According to industry insiders, product prices are not likely to go up drastically because soon domestic production will catch up with the demand.
With imposition of the MIP, 5-6 million tons of imports would be reduced and there is place for domestic steel producers to raise capacity utilisation and produce more. Since production will jump from all producers, it will allow only marginal hike in steel products going ahead, sources said.
Rating agency Fitch holds a similar view. The agency estimates that MIP will allow domestic producers to raise product prices for most products by $50-$70 a ton from the current levels. The rating agency says because of weak domestic demand, capacity utilisation is unlikely to improve significantly.
Hence, additional price increase, if any, would be similar to the current levels (4-5 percent) but spread out over the next three months. Consequently, Fitch expects profitability of steel producers to remain weak compared with the FY15 level.
“We believe that further steel price increases and a significant improvement in steel producers’ profitability will depend on a strong revival in domestic demand growth,” the report states. The agency continues to consider the increased government spending on infrastructure to be the key catalyst for acceleration in Indian steel consumption growth, which was at 4.7% in the first nine months of FY16. This followed weak demand from key end-user industries, such as real estate.
Globally, supply continues to outstrip demand. The recent announcement by China, the world’s largest steel producer, that it would cut its steel production by 100-150 million tons failed to adequately address concerns. China’s capacity is close to 1.2 billion tons, with an output of around 800 million tons in 2015.