The margins of steel companies are likely to remain under pressure in the second quarter starting July as raw material prices are expected to rise while there is little headroom for increasing prices.
According to sources, the demand of steel is expected to be impacted domestically as monsoon sets. Globally too, the demand has come down because of the European crisis and the Chinese efforts to prickle its housing bubble.
China’s Baoshan Iron and Steel Co, which is regarded to set price benchmark for China’s steel industry has cut prices of hot-rolled products by about 10 per cent for July. “Currently, the domestic steel prices are in line with the international steel prices. We can’t increase the price beyond a point in the wake of cheaper imported steel,” said an executive of a steel firm.
In May, steel imports had grown by 50 per cent to 0.82 million tonne, while exports had declined by 15 per cent to 0.19 million tonne.
Meanwhile, there are indications that NMDC could increase the price of iron ore for the second quarter. For the April-June quarter, the company had doubled its iron ore prices for export, while slightly hiking it for India.
Steel companies believe that the current scenario of low steel prices will remain for a long time. “We expect the steel prices to correct upwards in September,” an executive from another steel company said.
However, the dip in steel prices should come as a relief to the government, which is grappling with the problem of double digit inflation. During the start of the 2010, steel prices had been constantly increasing before seeing a decline in June.