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Pricing power seen returning to steel producers

Pricing power seen returning to steel producers

After about two years, pricing power seems to have returned to steel companies. Now, primary steel producers are preparing to raise prices for this month.

On Wednesday, NMDC announced a rise of Rs 250-300 a tonne in domestic iron ore prices. “Taking the total domestic demand-supply environment into consideration, we have decided to increase iron ore prices for this month,” said a source at NMDC. “In May, we had reduced prices of iron ore lumps by Rs 200 a tonne to Rs 4,300; so, a Rs 300 rise is not much. Prices of fines have been raised.”

After the price revision, iron ore lumps are priced at Rs 4,600 a tonne, while fines cost Rs 3,160 a tonne.

NMDC’s move prompted other steel companies to consider similar steps. “We are quite comfortable increasing product prices this time; we will be passing the entire rise to customers,” said a source at Essar Steel. “The rise will be effective across all products and for all customers, retail as well as OEMs (original equipment manufacturers)…Since current domestic steel prices are lower than those of imported steel, there is room for domestic steel producers to raise product prices.”

Compared with the landed cost of steel, domestic steel prices are lower by Rs 2,000-3,000 a tonne, depending upon the grade.

Some steel producers have already raised prices due to expectations of bullish demand, primarily from the infrastructure and construction segment. “We have already raised prices of TMT bars by Rs 700 from June 1,”said a source at Rashtriya Ispat Nigam. “Now that NMDC has raised iron ore prices, we will perhaps review the rates on June 15 and decide whether we want to increase prices further.”

Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel, said “We will be raising prices of both long- and flat-steel products, but are stilling working on the quantum of the rise.”

Steel Authority of India Ltd (SAIL) had reduced long-product prices by Rs 500 a tonne from June 1. “SAIL is trying to increase its market share in long-steel products by resorting to conversion of semi-finished steel into structural and TMT bars, instead of selling prime semi-steel in the market,” the company said in an email. Domestic steel companies have been struggling with weak demand for some time. The positive demand outlook was likely to translate into real demand in the next one-two quarters, said officials in steel companies.

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