Feb 8: The expected postponement of the budget and the delay in the government's planned expenditure owing to the elections may result in a further dampening of steel prices. The government is the single largest consumer of steel in the country and, therefore, any postponement of its planned expenditure leads to a weakening of demand.Further, the fact that additional private investments will wait for the emergence of clear policies from the new government will also contribute to falling demand. As a result, steel prices may witness a further slide.
Stocks with the steel majors are on the rise and drastic price cuts may be resorted to in the near future to reduce inventories.
Steel prices have been on the decline for quite some time now owing to slack domestic demand. There has been a negative growth in domestic demand for steel in the current year as compared to a five per cent and 13 per cent growth in 1996-97 and 1995-96. A slowdown in exports, mainly due to the prolonged crisis in south-east Asia,has been aiding this fall.
Prices have been falling far more sharply in the international markets due to the oversupply position, fuelled mainly by the Asian crisis. This leaves just two choices for domestic manufacturers -- to sell at low rates within the country or to export at even lower rates.
The domestic market is also feeling the heat from dumping. The CIS countries are reportedly selling HR coils in the country at price levels of $230 to $240 per tonne (approx Rs 9,000 per tonne, excluding import duty) against a domestic price of about Rs 17,000 per tonne.
Though a group of HR coil producers have made a representation to the government to impose an anti-dumping duty on the product, a decision is likely to be delayed owing to the election. While cheap imports are likely to keep pouring into the country, there are concerns that an anti-dumping duty may be imposed on Indian HR and CR products in the European Union.
Since lower demand and the risk-perception seen in exporting to traditionalmarkets in south-east Asia are likely to force domestic steel suppliers to target the European market, any sanctions will lead to a further inventory pile-up in the country. Even otherwise, domestic manufacturers are finding it difficult to meet their export targets.
Consider for instance Essar Steel, the country's largest exporter of HR coils, which earned an export income of Rs 320 crore in 1996-97. The company exported 2.38 lakh tonnes of hot-rolled coils during the year, 45 per cent of which went to south-east Asia.
The company had a target of exporting 3.1 lakh tonnes of HR coils in the current year. Any shortfalls in exports are most likely to find their way into the home market. Other exporters are also in a similar position and it is expected that most steel manufacturers will post poor results for the second consecutive year.
Analysts expect steel prices to be soft for most of 1998-99 as the effects of the current turmoil are likely to continue well into the next year. The commissioning of newHR facilities by the Ispat and Jindal groups, which will lead to an additional 30 lakh tonne capacity in HR products, will aid in the continuance of current trends.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
