Steel firms likely to cut prices

Domestic steel producers may soon cut prices marginally because of a threat of dumping by countries like China, where inventories have piled up after the Olympics.

Taking the lead, state-run Steel Authority of India (SAIL) has announced cutting rates by up to Rs 1,600 a tonne on select categories of products this month while producers like Essar, JSW and Ispat are mulling similar options.

Prices of major steel products like hot-rolled coil have come down to Rs 32,000 a tonne from its peak of about Rs 55,000 per tonne, earlier this year.

The companies see steel prices stabilising in the near future, but they do not rule out a correction in rates following China's move to scrap five per export duty, which could lead to the Indian market getting flooded with cheaper items.

"We are talking to our customers. Steel prices are stabilising at the moment, but we will continue to follow the international trends," JSW Group CFO Seshagiri Rao said, adding that the company has not yet decided on price cut.

Rao said demand for long steel products, mainly used in construction, is picking up but it would take some time for the sales of flat products to stabilise as consuming industries like auto continue to reel under waning demand.

An Ispat industry official said that steel prices are seen stabilising in the near term whereas an Essar Steel spokesperson said the company's prices will be in line with the market. Analysts foresee steel prices going down marginally in the near future as domestic producers would have to maintain import-parity rates.

"To protect their businesses against cheaper imports from China and maintain a price line in sync with the global market, domestic steel producers may cut rates," said Ernst & Young Partner Navin Vohra.

Steel futures could bring price stability (Reuters)

Vadim Makhov, a board member at Russia's biggest steelmaker Severstal , said the steel futures market was a "new reality", offering certain uses to steel producers as well as consumers and which could bring stability in pricing.

"Steel futures could be extremely helpful to evaluate investments ... It (the futures market) is going to take off. It is a new reality and we have to recognize it," he said at a Metal Bulletin steel conference in Paris. "It is the industry's responsibility to use it productively."

Several major exchanges around the world, such as the Chicago Mercantile Exchange (CME) and the London Metal Exchange (LME), have launched steel futures this year.

However, very few major steelmakers have shown an interest so far, with the world's biggest, ArcelorMittal repeatedly expressed its opposition to it.

Europe's No.2 steelmaker, Corus, owned by India's Tata Steel ( earlier this year that there could be some use for steel futures but did not elaborate.

Makhov said that to be able to see the forward curve in the steel price could provide a greater amount of visibility to several participants in the steel supply chain.

"If steel service centres would see the future curve, I believe very important aspect of destocking would disappear," he said.

"I believe a steel futures curve could also help us reduce cyclicality and that will greatly improve the valuations and the multiples of companies, which would give the industry more reliability."

He also said steel futures would expand to other products such as hot and cold-rolled and galvanised products.