Steel producers likely to hike prices by up to Rs 1,500/tonne

Domestic steel producers are expected to take advantage of the hike in Safeguard Duty and increase prices by up to Rs 1,500 per tonne.

Earlier this month, the government imposed a provisional Safeguard Duty of 20% on import of certain hot rolled flat steel products with a view to protect domestic producers from the recent surge in inward shipments from countries like China.

It will be applicable for 200 days, during which the inquiry on whether to continue the duty, will be completed by the Directorate General of Safeguards.

Industry insiders say steel demand is expected to pick up in the second half of this fiscal, beginning next month, as there are signs of revival in government spending on public projects.

Besides, industrial activity is also expected to pick up during the October-December quarter and the steel sector expects sales to increase during the period.

These factors coupled with a depreciating rupee against the dollar provides a good opportunity to the steel producers to raise prices, which can help them marginally by increasing their realisations.

Post the duty hike on HR coils there is a price gap in the imported and domestic steel. Major producers are supplying steel at around Rs 27,500 per tonne, while the landed price is in the range of Rs 30,000-30,500 a tonne, they said.

"There is a gap of Rs 2,500-3,000 per tonne. But China is very bearish and can further reduce prices," they added.

Even with Chinese price revision on the horizon, experts expect major Indian steel producers to raise prices anywhere in the range of Rs 500 to Rs 1,500 a tonne, keeping in mind the gap in prices. The price raise is expected in coming month.

According to industry experts there is a gradual pick up in project activity helped by higher spending by government and the public sector.

Projects awarded during the April-August period was up by 43 per cent to Rs 1.37 lakh crore, whereas amount for which tendering has taken place have risen to Rs 2.32 lakh crore.

Another development that will aid the industry is the depreciating rupee.

According to Moody's Investor Service, rupee depreciated by 6% to 63.6 to the US dollar at end-June from 60.06 at end-June 2014 and by a further 4 per cent to 66.4 at 15 September 2015. The weak rupee makes steel imports more expensive and helps domestic steel producers indirectly.

The safeguard duty and a depreciating rupee will provide a stabilising impact on domestic prices and demand-supply equations, although the extent of price increase may vary and fall short of the duty imposed, it said earlier this month.

The agency said safeguard duty on certain categories of hot rolled coil steel imported into India is credit positive for Indian steel producers, because the duty will support domestic steel prices, improve the producers' profitability and their leverage metrics.