JSW Steel sees input costs ease; demand to push price

JSW Steel Ltd, India's No. 3 producer of the alloy, expects raw material prices to soften in October-December but steel prices could rise on strong demand and a firm global market, senior officials said on Thursday.

The firm expects to contract coking coal for Oct-Dec at about $200 per tonne, down from $225 per tonne in July-Sept, while iron ore prices could fall to $120 a tonne, chief financial officer Rajeev Pai told reporters at a media briefing.

Until this year the cost was fixed by an annual pricing system, but now steel mills are saddled with prices that change each quarter. In July-Sept iron ore costs rose globally just as steel demand wavered and prices fell.

"We are seeing some price softening in raw material now, while internationally steel prices are getting hardened," Pai said. JSW requires about five million tonnes of coking coal annually.

Indian steel makers had raised prices in September on firm global rates and rising input costs and had indicated that rates would be on an uptrend, going forward.

Demand for the alloy is also rising led by consumer durables and auto sectors but officials said infrastructure and real estate sectors will lead demand in coming quarters.

The firm's inventory levels in July-Sept were down by 1,00,000 tonnes, indicating a pick-up in demand, Pai said, adding current inventory level was around 4,00,000 tonnes.

"We are seeing 10%-plus consumption in India. We expect demand to pick up in long products now. Next six months consumption will be much much better," joint managing director MVS Seshagiri Rao said.

This rising demand and firm international prices will prompt steelmakers to consider a price hike in October, Director Jayant Acharya said.

Expansion plans
The firm, which is aggressively expanding, expects capacity to touch 10 million tonnes by FY11, after the first unit at its new plant in Karnataka becomes fully operational by February.

It plans to set up another 10-million-tonne plant in West Bengal and hopes to start construction in 2011.

The steelmaker is working to lower its debt-equity ratio to 0.8:1 by end-September from 1.7:1 in June, enabling it "to carry out debottlenecking at Vijaynagar and expansion at West Bengal project," Rao said.

JSW, which in June was carrying out a due diligence for buying a stake in unlisted-firm Brahmani Steel, is opting out now, Rao said, without divulging details.

Shares of JSW Steel closed down 0.32 percent at Rs1,254 in a weak Mumbai market.