US, China move may help Indian steel makers hike price

 KOLKATA: The third consecutive month- to-month fall in Chinese exports of steel and production cuts by US may enable Indian steel companies to hike prices, for the first time in 2007-08.

China’s steel exports were down 6.6% in July over the previous months when it shipped 5.94 million tonnes.

Till July this year, China exported 39.7 million tonnes, an increase of 92% on a year-on-year basis. But it was down 5.5 percentage points from the first half of this year, clearly indicating that the Chinese government’s fiscal disincentives for exports were indeed working.

According to China Iron and Steel Association, this trend was expected to continue through the year despite international price and demand picking up over the next two months.

At the same time, in North America, where inventory adjustments were continuing, major steel producers was persisting with production cuts that will allow a rise in prices in the coming months.

These global market dynamics will offer a window of opportunity for Indian steel companies to work on a first official price rise this fiscal.  Domestic steel majors like Steel Authority of India Limited (SAIL), Tata Steel and JSW cut prices averaging between Rs 500-1,000 per tonne in July to match lower landed prices of imported steel.

Ever since start of this fiscal, steel companies have been hamstrung in improving margins. At first, in April this year, the industry voluntarily decided to maintain prices till end-May to lend a helping hand to the government battle against inflation.

Thereafter, softening of international prices in June-July did not offer any price increase opportunity to steel companies.  However, SAIL officials said that there would be limits to the quantum of price increase and better margin improvements should be ensured by taking advantage of the strong rupee and bringing down cost of imported raw materials. 
Hot rolled (HR) coil prices rose through May from a bottom around end- 2006, softened  gradually is on the rise again. However, during this time, the gap between trough and peak was only 14.2% and current prices of HR coils are only 8.6% off peak levels - an indication that rise in input costs was pushing up the breakeven point.

Hence it would be the strong rupee that will enable Indian steel companies to prune bills of imported raw material. This, analysts said, would be a bigger contributor to higher margins than a limited price increase.

According to a Morgan Stanley report, large steel makers’ average selling price is set to increase with hikes in automotive steel about to be settled within the next few weeks. Morgan Stanley said that Chinese steel prices, too, have bottomed out and Wuhan Steel has already announced that it will increase prices in September.

This being a direct fallout of the Chinese government’s move to slash export tax rebates on 161 products from 11-13% to 0-5%. This came just a month after China imposed a 5-10% export tariff on 82 steel products and raised duties on exports. All this was done to prevent western countries from launching the threatened trade war against China for disrupting global steel price dynamics through unbridled production.