Heat Treat Industry News
December 22, 2009
Steel prices set to soar globally
After hitting a high in July-August 2008, steel prices declined by more than 50-60% in the aftermath of the global recession. Since then, prices seem to be on a strong uptrend again and prices in the international market are firming up. Demand, especially from the automotive sector, has been picking up. For instance, prices of hot rolled coil (HR) which, in the fourth quarter of 2008-09, were ruling at about 29,500 per tonne, are currently at around Rs 32,000-35,000 per tonne. That’s about an 18% increase and analysts believe high prices will persist, given that HR coils are used primarily in the automobile industry. CLSA points out that in China, demand from the downstream sectors has improved and inventories are easing.
As such, end-users of steel are expected to step up purchases in the first quarter of 2010 in anticipation of higher steel prices. Part of the increase will be due to the cost-push effect of higher raw material prices. Contract prices of coking coal and iron ore are set to rise. Experts believe that the margins of steel producers are expected to be under pressure once the full impact of higher input costs is felt . That’s despite a price rise in the finished product.
Prices of iron ore contracts, which are due to be renegotiated early next year, are expected to be finalised at higher levels of anywhere between 10% and 25% over those of 2008-09. Iron ore contract prices in 2008-09 were sealed at $75 a tonne, while coking coal prices were sealed at around $300 per tonne. While in the current year, long-term coking coal prices have fallen to $128 per tonne, in the spot market, prices are ruling slightly higher.
As CLSA observes, steel sector EBITDA per tonne could come under pressure during April to June 2010 once the higher input prices kick in as there is still a considerable level of over-supply in the western world. Indian steel producers’ bottomline in the third quarter of financial year 2009-10 may be good, as the real impact of the increased raw material prices will be seen only in the fourth quarter of 2009-10. Moreover, the actual profit will only be visible from the fourth quarter onwards when the prices of raw material and finished goods increase from January next year onwards.
by Smita Joshi Saha - Posted: Tuesday, Dec 22, 2009 at 0235 hrs IST
SOURCE: The Financial Express
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