Traders and manufacturers in Mandi Gobindgarh have diverse feelings as far as the future trend of steel prices is concerned, but all of them are unanimous in their views that imposition of the minimum import price (MIP) has given a breather to small steel mills in Punjab.
While manufacturers feel that there is a possibility of prices softening after the end of the current financial year, the traders differ as some of them feel there is further scope for improvement in prices.
Naresh Khandelwal, Managing Director of Rajdhani Group, a leading manufacturer of ingots, pipes and channels, said the MIP had come at an appropriate time because the entire industry was passing through a difficult phase.
“I had almost decided to close my plants had the MIP not come through because we were being unable to recover the cost of production,” he said, adding, even at present, their plant is operating at 75-80% capacity, added to which are liquidity crunch woes.
However, Khandelwal, feels that the recent surge in steel prices post-imposition of the minimum import price (MIP) on February 5 may not continue and prices may start softening in view of less-than-encouraging demand.
The Rajdhani Group was set up in 2009 with a capacity to produce 2,000 tons of ingots per day through the scrap route. It also has a rolling mill for the manufacture of pipes and channels.
“My gut feeling is that prices will start softening after March 31 because actual demand is not that strong and steel-makers may cut prices by at least Rs 2 per kg,” Khandelwal told ISMW.
“Even if demand comes thanks to the MIP, it will happen in May-June, but by then monsoon will arrive and that will again affect demand,” he said.
However, Nikhil Gupta, Managing Director of Presto Steel Company, a dealer of TMT, which is also into trading of scrap, billets and blooms, said, “The current firmness in steel prices (TMT), particularly in the Mandi Govindgarh area, is largely because of shortage of material (billets) as a number of plants downed their shutters in recent months.”
Explaining the reason for low availability, Gupta said: “Of the nearly 180 furnaces in and around Mandi Govindgarh, only 60 were operating as on March 12 and that has created a kind of shortage for billets. In view of shortage in local market, there is increased arrival of billets from places like Raigarh, but there has been spurt in freight rates by up to Rs 2,500-3,000 per ton and this has restricted arrivals.”
According to him, the current market scenario is “good” as compared to the situation in December 2015 when demand was extremely low due to the general slowdown that had prompted many furnaces to shut down as they were unable to recover even the conversion cost.
Meanwhile, there has been a slight improvement in margins as the conversion margin from scrap to billets has improved to Rs 6,000 per ton from a low of around Rs 5,200-5,300 per ton in December, he pointed out.
The main reason for the improvement in margin, according to Gupta, is higher availability of electricity and some relaxation in the timing of peak and non-peak supply of electricity.
“Earlier, the furnaces were running only during day time when electricity rates were higher during the peak period, but now they are running both during day and night when non-peak rates are charged.
Another trader feels that the MIP has reduced the pressure from China and domestic prices of TMT are up by around Rs 6,000 per ton.
“I would say, of the total increase in prices that came post-MIP, as much as 50% was due to a slight improvement in demand driven by positive sentiment as stockists started picking up material in anticipation of firmness in prices,” said Sachin Singla, of Steel Centre, another trading firm.
“So the MIP changed the game as it changed the views of customers,” he added.
Singla, however, agreed with Khandelwal that ultimately the prices will depend on how the market behaves at the beginning of the next financial year. For demand to be positive, infrastructure projects initiated by the government have to be competed, he added.
Explaining further, he said, after a spurt in prices, driven by a tendency among stockist to lift higher quantities of material, demand has subsided as buyers are adopting caution.
“We can say that current prices are only slightly lower than the MIP and so demand has fallen as people are not accepting the new prices, especially in the coils segments. This is prompting many a player to book profit,” he added.