Primary steel producers in India are likely to roll over the prices of their products in July despite the sustained increase in raw material costs, which has been squeezing their margins over the past few months.
Steel prices have declined nearly 20 per cent the past three months due to weak demand and the trend is likely to continue during the ongoing monsoon season following slow infrastructure and construction activity. Mills are unwilling to risk an upward price revision despite profit margin pressures.
While iron ore prices have surged by a staggering 36 per cent in three months and 13 per cent in June alone, to trade currently at $112 a tonne in international markets, Coking coal and hot rolled cold prices posted a decline of up to 22 per cent.
“Iron ore prices have jumped sharply in the last few months resulting in pressure on our profit margins. But, looking at the weak demand from the construction and infrastructure sector during the ongoing monsoon season, we would be rolling over our product prices for July. The situation, however, would be clear by the first week of July,” said a senior official of a leading steel mill.
Steel prices on the Indian Commodity Exchange (ICEX) reported a decline of 19 per cent in the last three months to trade currently at Rs 30,000 a tonne, from Rs 37,000 a tonne in February. Producers like JSW Steel, however, are working on the demand of specific products to take a final call on price revision.
“Squeezed margins due to continuous increase in raw materials costs call for an upward revision in steel prices. Coking coal prices remained up for quite some time now, iron ore prices have also jumped significantly in June. But, steel demand has been weak. Hence, we may look at a price revision on specific products depending upon their demand,” said Jayant Acharya, Director, Commercial, Marketing & Corporate Strategy, JSW Steel.
Government-owned NMDC kept its iron ore prices unchanged for July at Rs 3,100 a tonne and Rs 2,860 a tonne of lump and fines respectively.
“The steel prices have remained under pressure globally because Chinese production has increased, and the fear of a global slowdown following the trade war has resulted in lower consumption. In India, the demand has remained sluggish and fear of dumping has also led to correction in steel prices,” said Kunal Shah, Head of Commodity Research, Nirmal Bang Security.
“Owing to overall economic slowdown and lack of liquidity in the market, there is a fall in steel demand of from construction sector, consumer durables and automotive industries etc. resulting into a steep fall in product prices. In such a scenario, futures trading provides a good opportunity to hedge against fall in prices,” said Kalpesh Sanghvi, a Mumbai-based steel trader.