As the ongoing global economic downturn puts brakes on the Indian growth story, the steel industry is under severe pressure to cut prices further in order to see demand pick up again. However, the country’s largest producer Steel Authority of India (SAIL) feels that there was no more room for prices to go down in the current cost structure.
SAIL chairman SK Roongta said on Thursday that prices can go down now only if there was a substantial reduction in prices of long term supply contracts for coking coal and iron ore, main raw materials for producing steel. He added that coking coal prices may soften further by 20%, in which case there may be further cut in steel prices. However, till the raw material prices remain at current levels, steel producers did not afford any more price cutting measures.
Domestic steel prices have softened by about 40% since touching peak in September last year amidst crashing global prices and softening demand at home. However, many players in steel consuming segments believe that prices should soften further to reflect the full impact of easing demand and downturn in economy. Major steel consumers like auto industry and real estate are witnessing the worst period of economic business cycle with year-on-year auto sales collapsing about 20% in December and realtors’ facing nearly frozen demand.
Analysts feel that while demand side weaknesses do point out towards further cut in prices, the monopolistic nature of Indian steel industry and recent firming up witnessed in global prices will ensure that domestic prices remain firm in near term.