The recent hike in steel prices has led to domestic rates overtaking import rates. The disparity of $40 a tonne (Rs 2,000 a tonne) is set to revive imports, which were lagging due to volatile currency exchange rates, according to dealers.
The difference in prices has come when the global steel producers are facing a slowdown in demand on the back of excess production capacity. Last year, the international steelmaking capacity increased by 80 million tonnes to about 1,890 mt with consumption estimated at 1,398 mt, resulting in 493 mt of excess capacity, said market sources.
Domestic steel demand in February has fallen by five per cent to 5.7 mt from 6 mt consumed in January, said a steel company official.
In last two months, domestic steel companies marked up long and flat product prices by Rs 2,000 to about Rs 54,000 a tonne and Rs 35,000 a tonne respectively. This was on the back of rising freight and input costs. Steel prices were increased even as the demand remained lacklustre, a dealer said.
Earlier this month, the Government reduced the railway freight on iron ore meant for exports by 16 per cent to Rs 2,425 a tonne. This was done to incentivise exporters who were burdened by the 30 per cent hike in export duty.
India is one of the world's biggest exporters of iron ore and ships most of its iron ore to China, the world's largest steel production capacity with a capacity of 828 mt a year. India has a production capacity of 70 mtpa.
“The special freight concession for iron ore exports is little intriguing, particularly when the domestic companies are facing rising operational costs and slowing demand,” said the official.
Iron ore prices have increased substantially after the Supreme Court ban on iron ore mining in Karnataka. To make a tonne of steel, companies require 1.6 tonnes of iron ore.