Domestic majors are gearing up for another round of increase in prices after the monsoon if the uptrend is sustained and domestic demand-supply mismatch taken care of through increased exports.

Steel companies have been hit as, since December, several user companies have taken use of the loophole in the floor price mechanism by importing at prices far lower than the floor price.

While domestic hot-rolled coil prices are ruling at the $240-255 per tonne level, international prices have jumped to the $280-305 a tonne levels and is expected to rise further. "The present situation has resulted in exports becoming far more lucrative than before," a senior steel industry official said.

A Tata Steel official told The Financial Express: "The supply-demand imbalance in the HR coil sector inthe current year is 1.5 to 2 million tonnes. The rise in exports and drop in imports would bridge this gap and we are hoping to see prices increasing after monsoon." Tata Steel had in July raised prices by Rs 200 a tonne.

Officials of SAIL agreed that imports through advance license scheme has dropped subustantially. The monthly imports of HR in June was 50,000 tonnes, and have declined to less than 20,000 tonnes in July. "In the current month the shipments are quite negligible. This gives renewed hope for a rise in prices," the SAIL official added.

In the bourses, with expectations of an increase in steel prices, steel scrips have also started moving northwards. Tata Steel has jumped to Rs 141 from 133 a fortnight back, while biggest movement has been noticed in the Jindal group companies.

Both Jindal Vijaynagar and Jisco has hit the upper end of the circuit filter in the last four days. JVSL has risen from Rs 3.80 to Rs 5.55 during the period and Essar Steel has shot up to Rs 7.82 to Rs13.30.

Leading traders are, however, still circumspect. Industry sources say that Essar Steel is still running the plant at 70 per cent capacity, which is also the case with some of the other private sector steel players.

Even the first quarter results of Essar show that it had operated at approximately 78 per cent capacity during the period.

However, if the domestic majors - Tata Steel and Sail - raise prices and the private players may increase their capacity utilisation, upsetting all chances of sustainable price rise. Officials of Essar Steel were unavailable for comment on the issue.

The rise in cement offtake has resulted in a consequent uptrend of demand for long products, especially tor-steel required for construction of bridges. This has also benefitted host of small scale steel manufactures, who use output of billets of either Tisco or Sail. If the current trend continues, prices of tor-steel would be among the first to show a rise.

INSIGHT
Competition may fade

Afterdismantling of JPC, it is only in recent times that the steel industry has faced competition in the form of imports. With domestic prices following the landed cost of imports, the rise in international prices of steel would mean that the only element of competition from Indian market would fade. This can fuel price hikes. This is because the market in India for steel is very thin. Direct sales still form a major chunk of total steel sales (more than 40 per cent) compared with its peers in other countries, where indirect sales are close to 90 per cent. In such a scenario if all the steel companies raise price, the user industry has to accept it whatever be the jump, primarly because the element of competition is missing.

-- Percy Dubash