By Sohrab Darabshaw
Having registered the Indian steel industry's lowest growth rate ever, most of India's steel companies are reeling from low domestic consumption and the reduced value of the rupee. They have either cut the prices or are actively contemplating it.
A far cry from earlier this year when some, including the publicly-owned Steel Authority of India (SAIL), had increased prices.
Though the official growth figure for the steel sector in the last fiscal year has not been announced by the Indian Government, most analysts here are unwilling to peg it at over 1 percent and some insist the 1 percent figure is a very charitable estimate.
Indian media have reported it to be between 0.5 to 1.5 percent. A report in the Financial Chronicle, quoting analysts, said the Indian steel sector has seen a listless growth of less than 1 percent for 2013-14.
Government indecisiveness, an election year and a delay in project approvals have all resulted in a slowdown in the auto, real estate and infrastructure sectors negatively impacting demand for steel.
The FC report quoted Sanjay Jain, analyst with brokerage firm Motilal Oswal, saying that the steel sector had witnessed only 0.6 percent growth in the first 11 months of FY14. Demand continued to remain low in March, too.
That was the trigger for steel companies to slash prices even before the onset of the monsoon season in June, when steel prices historically begin to correct themselves in India.
Now the appreciation of the rupee against the US dollar combined with falling international steel prices has forced steelmakers to marginally cut prices of flat steel product like hot-rolled coil (HRC) in order to stay competitive with cheaper imports.
A report in DNA, however, said some steelmakers were contemplating increasing prices of long products, especially thermo mechanical treatment (TMT) bars since they are still in demand. Tata Steel, India's largest private producer, was contemplating hiking TMT rates. Because of these hikes and the cooling of raw material prices, the margins of steel companies may not be impacted as severely this quarter, but that seems to be the only silver lining from this data.
Essar Steel, which only produces flat products, has already marginally lowered prices of some commodity grade flat steel mainly due to rupee strengthening. Another major steel company in the western region has also cut its HRC price by about US $15 per ton.
JSW Steel has said it is contemplating a price cut of up to US $200 per ton. Others such as Kalyani Steel said that they have not yet decided on the price cut, but would make a call soon.
According to research agency ICRA Report, the near-term outlook on the profitability of Indian steel players has improved, given the soft price trends of key raw materials.
ICRA believes that, in the longer term, volume growth will be critical as fresh capacities are likely to be commissioned in the next two years. Unless demand improves significantly, overall capacity utilization levels and profitability of steel players will remain impacted.