Steel prices in India may come under pressure as govt mulls ‘corrective’ steps

Steel companies have argued that they have been forced to raise prices as prices of iron ore, their primary raw material, have more than doubled since June and were currently costing them Rs 8,000 a tonne. – Subramani Mancombu

Akashdeep Metal Industries | Non-promoter entity Anisha Impex Ltd alongwith PACs increased stake in the company to 16.91 percent from 12.52 percent earlier, via open market transaction. (Image: Reuters)

Steel prices in India, which have surged 55 percent in the last six months, are likely to come under pressure as the Union government is expected to take some “corrective” steps.

“There is a possibility for steel prices to drop around 20 percent from current levels as the Government is likely to ease the supply of iron ore and lower the duty on steel imports. These could bring down costs and put pressure on surging steel,” an industry official, who did not wish to be identified, said.

Currently, steel prices, for various grades such as TMT, wire rods, are ruling around Rs 50,000 a tonne.

Minister of Road Transport and Highways Nitin Gadkari had written to Prime Minister Narendra Modi recently expressing concern over the increase in steel prices. He said that the hike, four times in the current quarter, would raise the cost of infrastructure projects and make them unviable.

“Gadkari is right in voicing concern. Rising costs could force a revision of the contracts. The Government will not want to do that and hence will opt for a corrective course,” the official said.

Surge in iron ore prices

Steel companies have argued that they have been forced to raise prices as prices of iron ore, their primary raw material, have more than doubled since June and were currently costing them Rs 8,000 a tonne.

Steel manufacturers have urged Union Minister for Mines Dharmendra Pradhan to ban iron ore exports. Pradhan responded, saying that the government was considering imposing a short-term ban on exports of iron ore in wake of domestic shortage.

In response, the Federation of Indian Mineral Industries (FIMI) said there was no need to ban iron ore exports as in future, steel will be produced through recycling. The production could increase gradually once ample scrap is generated for reuse.

FIMI said India recycled 25 million tonnes of steel last year, accounting for 28 per cent of 90 million tonnes of crude steel produced in the country.

China used 216 million tonnes of scrap, making up 22 per cent of steel produced.

Iron ore gains 76 percent this year

According to Trading Economics website, global steel prices have increased 15.39 per cent year-on-year, while iron ore prices are up 76 percent during the same period.

In China’s Dalian Exchange, iron ore prices have gained 50 percent this year compared to hot-rolled steel’s 20 percent rise.

Iron ore with 63.5 percent ferrous content is quoting at $162.50 (Rs 12,000) a tonne, while 62 percent ferrous content ore is ruling at $154.50 (Rs 11,375).

Prices are up over 25 percent since November this year.

Hot-rolled coil steel is ruling at 4,318 Chinese yan (Rs 48,650) a tonne. Prices are up five percent since last month.

“The Centre could resort to the extension of mine leasing and streamline ore supply in view of supply shortage,” the executive said.

Demand has forced government-owned National Mineral Development Corporation to hike ore price twice since last month.

Govt mulls floor price for iron ore exports

The Union Government is considering imposing floor prices for export of iron ore to ensure that high-grade ores are not shipped out in the garb of ore fines.

The move comes on heels of China’s import of iron ore from India rising by 73 percent during April-November period of the current fiscal compared with the year-ago period.

China is importing more iron ore from India to meet demand for its infrastructure projects and also because it has stopped importing the ores from Australia following fissures in their bilateral relations.

Global rating agency Fitch forecasts China to produce a record 980 million tonnes of steel each this year and next following demand from infrastructure and construction.

The rating agency said it expects activity in the steel sector to reach pre-Coronavirus pandemic level by the end of 2022 only.

Dutch investment bank ING said that China had imported 975 million tonnes of iron ore during January-October this year and its total imports for the year could be 10 percent higher than last year.

The bank senior analyst Wenyu Yao said global steel demand would recover 2-3 percent next year and consumption would be around last year levels.

Iron ore supply would increase 80-100 million tonnes but a lacklustre demand growth could result in ore surplus, which could weigh heavily on the prices.

China tops steel production in November

Meanwhile, the World Steel Organization said global steel production in the 64 countries, from where it has got data, increased 6.6 percent in November compared with last year at 158.26 million tonnes.

China again topped producing 87.7 million tonnes of steel, following by India, which produced 9.24 million tonnes. China’s steel output rose eight per cent and India’s 3.5 per cent in November.

(Subramani Ra Mancombu is a journalist based in Chennai, who writes on topics in commodities and agriculture)

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