A spurt in steel prices triggered by the announcement of the minimum import prices (MIP) on February 5 for a host of steel products, except API grade conforming to X-52 and higher grades, may not sustain in the coming days unless there is genuine demand for products from the market, industry sources feel.
“Steel prices may have firmed up, which is good for the industry, which was bleeding due to low-cost imports. But until and unless there is genuine increase in demand, the upward trend may not sustain and prices may soften a bit as there is huge inventory lying with various manufacturers,” they said.
An indication of the downward correction was witnessed in prices towards the beginning of the week starting February 16, but firmness returned to some extent on February 20, according to a compilation of prices of various steel products by ISMW.
There was practically no increase in demand, but manufacturers and traders have managed to push up prices in anticipation that negative sentiment that was created in view of rampant imports at much lower prices will now turn positive, they said.
Market report suggests the companies like Tata Steel, SAIL, JSW, JSPL and others are running huge inventories and as such a brief downward correction came in during the middle of the previous week ending February 20.
“It is not only lack of fresh demand that forced prices to slip off highs, but another factor was a higher level of inventories lying with most of the integrated steel producers,” they said.
“There is huge inventory lying with various companies and till the inventories go down, the probability of which is very low at least in the next 3-4 months, the prices may continue to move around current levels,” they said.
Till the demand increases and inventories go down, I do not think, the firmness witnessed in prices post-MIP announcement will continue. Already, prices of most of the products are lower than that prevailing on February 4, ie, a day before the MIP was announced, said another source.
Industry players believe that the MIP will not give long-term comfort to the industry until and unless there is increase in demand.
“Actually, the steel industry’s actual demand from the government was to increase spending on infrastructure to jack up steel demand, but as it could not directly ask for this, as a second option, they had demanded imposition of an MIP,” said a CFO of a company.
“Till the growth in demand comes and private sector investor investment comes in, the situation is unlikely to improve,” he added.
“With the imposition of the MIP, there is a possibility that steel imports will decline to the extent of 5-6 million tons during the next 5-6 months and to that extent domestic steel consumption will go up which will help the domestic players,” they said.
Asked if the MIP will lead to any major increase in India’s domestic steel production in the balance period of the current financial year, the officials said: “We do not think there will be any major increase in domestic steel production as already there is huge inventory to the extent of nearly six months,” they said.
However, if demand picks up, then there will be impact of MIP on not only domestic prices, but domestic steel production as well.
Only a few measures are required to be taken by the government to boost steel demand like announcing a few confidence boosting measures so that investors are encouraged to put in fresh investment, said one source.
“It has been observed that new private projects are not coming into the country or are not being announced as a section of industry is not willing to put in fresh investment as they are not sure whether the government will ensure continuity in policies... especially after what happened in case of coal blocks,” said an official of a company, whose coal block was de-allocated by the Supreme Court.