Despite the sharp increase in raw material costs, steelmakers have limited the hike in prices to Rs 350-500 a tonne due to uncertainty in demand post-Budget. However, most steel companies, such as SAIL, Tata Steel, JSW Steel and Essar Steel, have hiked prices by about Rs 2,000 a tonne in the last two months citing surge in iron ore and coking coal prices.
There is uncertainty in the demand from the infrastructure and housing sectors due to rising cost of funds. High inflation and the likelihood of a further rise in key bank rates may force developers to delay projects, said an analyst.
The slowing demand from the automobile and consumer goods sectors appears to have forced them from effecting major price hikes, he added.
“Major steel companies sign quarterly contracts for their key raw material such as coking coal and iron ore and, hence, we do not expect any impact on our profitability in the March quarter. However, if the slowdown in demand persists, then it may have an impact in the coming quarters,” said a steel company executive.
Mixed signs
Mr D.R. Dogra, Managing Director and Chief Executive Officer, Care Rating, said the Indian economy is going through a critical phase with mixed signs of economic growth. While GDP growth is expected to be buoyant, there are some signs that suggest that the industry may be slowing down.
“The high interest rate regime has added to this sentiment while rising prices have caused the Reserve Bank of India to take a close look at interest rates,” he added.
Global factor
Fall in global steel demand and consequent fall in prices, particularly after mid-February, has made Indian producers desist from implementing sharp price increases, said a North-based steel trader.
Recently, the Chinese premier said measures would be taken to cool down the economy to rein in the run-away inflation. Taking a cue, steel prices in China have been sliding since February-end.
Political unrest in West Asia and North Africa has compounded the problem and many of the Chinese exports have vanished suddenly, forcing them to find alternative destinations, including India, the trader said.