Many, therefore, thought that if the prices of downstream products do not increase proportionately, counteractive forces will put a halt to the rising prices of slabs and hot rolled coils, if not by reducing the same also if necessary.

Two, the prices of metallics, ferrous scrap, pig iron and directly reduced iron (DRI ) remained low all through, barring a brief spurt in between. The ferrous scrap prices, in particular, crashed again and the prices of this critical input is not showing any sign of a major recovery. It was believed that if the prices of metallics remain low, those of steel will also be so.

Fortunately for thesteel-makers globally, the prices of galvanised products as well as those of cold rolled flat products in the world market have finally started looking up. Although the cold rolled products had started to move up since the beginning of the third quarter and there were enough indication that the trend would be maintained, the galvanised products continued to remain in their groove for a long time.

The recent trends show an all round improvement in the prices of flat steel products. The global crude steel production is on the rise in the last two months. The rising prices have definitely generated a euphoria in the business and there are predictions of a sharp upturn in the market the world over, beginning the first quarter of the coming year.

The factors in favour include the continuation of global economic recovery and more specifically, in the south east and east Asia. This, experts say, will jack up steel consumption there. They say that global demand for steel in 2000 would be close to the record levelachieved in 1997.

As against this, it is predicted that supply would continue to remain tight. This would naturally push the global price line further up.

There is definitely an improvement in demand for steel globally. Although the best days are still far away, the worst is over. Added to that, tightness in supply has already brought in necessary correction to reduce stock.

But to assume that supply of steel in the world market will not increase proportionately is underestimating the steel makers, who are waiting for the first sign to improve the overall situation to come back to business using their idled capacity so far. At low prices, they may not be inclined to take losses any further. But, not at better prices. The question is at what point they move in.

Today, the export prices of hot rolled coils are hovering in the range of $250-270 per tonne, depending on the quality and grades from countries other than Brazil and those in the CIS. The Russian coils are available at $190 per tonne FOB. TheUkrainian products fetch a much lower price. If the statistics published by the Metal Bulletin are authentic, the Brazilian prices are in the range of $210-220 FOB.

The price at which steel mills, now partially or fully shut, will get back to the market will depend on a host of factors. First, how far the stockholders and consumers globally will go to build their inventory? If the perception of shortage remains strong, there will be a stronger tendency to build stock immediately to ward off the consequences of a sharp price rise.

To some extent, the current price increase has also been shaped by such perceptions to pick up steel when the prices are low, even if there may not have been immediate demand for it in every sector. During the period when the prices were at rock bottom, the users were unwilling to hold stock and, therefore, booked only what they required immediately. This perception is changing to some extent.

Although one is not very sure how strong this factor has been, there is enough groundto believe that this factor is in force. In fact, the most major price increases in the past were governed by large play of speculation and desperate accumulation of stock by stockists and end users as well as excessive booking by traders.

The acceptable price level to re-enter steel production will vary from country to country depending on the conditions of their domestic markets and the competitive position of the industry. A major factor determining the competitive position of the industry and attractiveness of exports is the value of their currencies.

The European mills with their weakening currencies will find their affordable price level much lower now, compared to that a year ago. But so long as their domestic markets remain strong, they will face little compulsion to export. But, with the possible weakening of their home market, the European mills will be forced to re-enter the export market sooner or later.

The region that had become a net importer of steel in 1998 for the first time perhaps inits history has already seen a sharp decline in its imports. The latest reports indicate increasing interest of the European mills in exports. If the European steel industry is to export, their quotations can be lower relatively as the European currencies are weaker now.

The situation is different for Japan. Although it will be tough for the Japanese to export at lower prices and they would look for higher dollar denominated prices as their currency has strengthened in the recent past, the question is whether they would get such prices.

In fact, the Japanese government and industry panicked as their currency gained strength with the prospects of their exports getting a beating in the world market. But Japanese steel consumption is also on the up and, therefore, the Japanese mills will have reasons to concentrate more on their home market.

Thus, in the high end of the market, the European exports that remained low last year may take the lead in the coming days and the producers there should find eventhe current prices acceptable for business. A five per cent increase from now will mean an attractive proposition. At the low end of the market, the CIS producers for whom there is no discernible bottom line will rule the global price line.

The rising steel production globally, and that too in countries known for their low pricing (for example the CIS) may have an adverse impact on the global price line. Increased competition should be also taken. Now that steel output is on the rise, there is also an increasing concern that the steel prices may fall further with competition gaining ground. Therefore, unless there is a speculative boom, the gains in steel prices in the coming days will be rather limited. At the given level of global demand, the price increases will be slow and the industry will remain cautious.

(The author is an economist associated with the Ministry of Steel. The views expressed here are his own)