Steel - Prospects for demand recovery look bleak

Srujani Panda / 17 Oct 2011

With unrest in MENA region, severe tightening in China, grim outlook in US and debt issues in EU, the prospects for demand recovery look bleak.
Steel guru had organized market meet on Steel prices and its current scenario. We at DSIJ attended the same and following are the major key take away.
  • The demand for steel in India and across world has declined. 
  • Indian steel consumption will now grow by 4% vs. 10 % as earlier expected
  • The steel prices across world has come down on back of decline in demand from Europe and China in last two months
  • However the steel prices in India is on the rising trend despite decline in demand 
  • Major reasons as attributed discussed in the meeting were due to uncertainty in the production and because of increase in the raw material prices.
  • The panel was of the opinion that the increase in the steel prices is temporary and will not sustain due to slowdown in demand.
  • China is going through high inflation problem and has tightened the liquidity position in the country. The liquidity tightening will have its impact on the demand on the goods.
  • Because of this in last one month the Chinese steel prices have come down.
  • However the situation may not remain same once the inflation cools down. 
  • Also china has planned to build 10 mn low cost housing which will become the growth driver during the year if there are no delays. 
Raw material Prices
  • Iron ore prices internationally have come down marginally due to slowdown in the steel consumption leading to production cut in steel.
  • Coking coal prices in last one month has come down to $ 285 from $ 300. 
  • From January onwards rains starts in Australia (70 % of coking coal is imported) and can be a major problem if flooding happens in the coking coal mining region. 
  •  Coking coal prices went up drastically in FY11 due to the floods in mining. This resulted in the scarcity of coking coal and prices went up sharply to 330-350 $ per tonne.
Major Challenges for the sector
  • Land availability Issues for New Capex as land acquisition in India takes lot of time. 
  • Lack of proper infrastructure leading to increase in the logistic cost
  • Movement of Raw materials from rural area a concern. 
The coming six month for steel industry in India and across world will remain quite challenging in terms of demand and prices facing severe cost push with iron ore and coking coal prices remaining sky high, while the finished steel prices are subdued comparatively. With unrest in MENA region, severe tightening in China, grim outlook in US and debt issues in EU, the prospects for demand recovery look bleak.

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