Steep rise in input prices chiefly
iron ore and coking coal & consequently falling operating profit margins
have shrunk steel company's performance.
Also, the Reserve Bank of India's
consistent raise in interest rates has not only pushed up borrowing costs for
companies, but has resulted in sluggish demand from user industries like
construction, infrastructure, and automobiles.
Therefore, steel makers have
not been able to raise prices and pass on the raw material price rise to their
customers.
From a global perspective, the
euro zone debt crisis has curtailed growth in construction and housing as well.
As these sectors account for half of the total steel demand in the region, the
slowdown adds to the downward pressure on global steel prices.
Over the past few months, the
price of hot rolled sheet steel, which is used in cars and appliances, has declined
nearly 10% in Europe and 25% in the US.
Adding to the industry's concerns
is the industrial production growth in China – the region's largest consumer of
steel -has fallen from 14.9% in the Jan-March quarter to 14% currently.
Meanwhile, global steel production has fallen over 50% from January
2011 to date.
But there could be some relief
for steel makers as coking coal and iron ore prices have fallen since April,
albeit marginally. While prices remain higher compared with last year, some
analysts expect contract prices for coking coal to fall below $300/tonne by the
October quarter from the current $315/tonne.
Indian steel manufacturers are
likely to raise prices by `500-1,000/tonne or about three per cent this month.
This follows a ban on iron ore mining in Karnataka. The state accounts for
about 25% of the country's iron and steel production, and the ban will impact
miners as well as steel makers.
Source: The Economic Times
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