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Neha Kapoor
Shyam G. Menon

MUMBAI, March 5

DESPITE concerns raised by a large foreign brokerage firm about steel inventory build-up in key Asian markets, steel manufacturers here felt the concerns were unwarranted.

In a report dated March 3, Goldman Sachs said, "We believe Asian supply has exceeded demand over the last couple of months. We saw a sharp rise in January inventory in Japan and a continued rise in Korea and Taiwan. This came as a surprise to us given that demand seems to have been strong in China and Korea.

"We expect that contract pricing of steel may peak in the second or third quarter of 2003, and spot pricing may come down in a couple of months."

The brokerage downgraded its rating on South Korean steel major Posco from outperform to in-line with a lowered 12-month target price. It maintained its in-line rating on China Steel but lowered its 12-month target. For both mills, 2004 EPS was "sharply lowered".

The report which cited acceleration in China's demand as "key risk to its target", further observed, "Inventory has risen substantially despite strong demand in China and Korea."

On Tuesday, Posco closed 7.67 per cent down at $21.31 with volumes touching 893,300 trades on the New York Stock Exchange (NYSE).

When contacted, Tata Steel spokesperson said the outlook for steel market appears stable for the next 3-6 months. Domestic demand is quite firm. "We have long-term customers in India," the spokesperson said.

The steel major is unlikely to be impacted by a possible volatile situation in the overseas markets as its exports are usually 15-18 per cent.

Mr J.K. Tandon, Joint Managing Director, Jindal Vijaynagar Steel Ltd (JVSL), said, "The report seems to have gone overboard."

According to him, regular steel exports have been happening to both China and US with feedback on product quality from both places. Such feedback on product quality would not happen if the exported items were going into inventory, Mr Tandon said.

He maintained there was no major worry on steel sector outlook — exports having been a great incentive in the recent past — for at least the short to medium term.

The opinion was shared at Goa, from where many Asian steel producers import iron ore. A senior official of the Goa Mineral Ore Exporters Association (GMOEA) said, Chinese offtake of iron ore continued to be of the scale wherein exporters were finding it difficult to meet their needs. Besides, for upcoming price negotiations with the Japanese, the biggest iron ore buyers from Goa, expectation on the ground is of a 3-5 per cent increase in export prices. The possibility of Chinese demand for steel drying up is far-fetched, says the Tata Steel official. "China needs steel and it will have to look at overseas markets as its steel plants are very old," he said.

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