Steel prices to move northwards

Steel prices to move northwards
The Economic Times, December 29, 2009, Page 7

Santanu Mishra ET INTELLIGENCE GROUP

AFTER trailing for most parts of the year, steel prices in developed economies are set to move northwards. There has been a secular growth across regions, mainly in developed economies, in steel production for the last three months, data from World Steel Association show. In earlier part of the year, growth in steel production was seen in few developing countries, like India and China. For European region, which accounts for close to one-sixth of world’s total crude steel production, the monthly production rate surged to 13-14 million tonnes in the last three months from 10-11 million tonnes in the preceding months of 2009. This holds true for another major economy, North America. The monthly production rate in past three months have been hovering at 8-9 million tonnes from 6 million tonnes earlier. The same trend is seen in other regions, like CIS countries and Latin America, as well. The higher production figures are in line with higher capacity utilisation.

Do all these mean the companies are seeing higher demand from these regions? If the answer to this question is yes, then it should reflect on the global steel prices. Data from Bloomberg, however, reveals that this price impact has not taken place as of now. The current benchmark domestic HRC (hot rolled coils) price in EU region is, perhaps, the lowest in the 2009. In Latin America and CIS region, the benchmark HRC prices have also not gone anywhere in past few months.

However, if the demand continues at the current pace, the prices are bound to surge in the coming months. Though analysts differ in their views about the quantum of rise, most of them agree on the rising steel prices in the next calendar year. And this is likely to benefit some of the Indian steel producers with overseas presence. For instance, any resurgence in steel demand in the EU region will benefit Tata Steel’s Corus operation substantially. Operating losses posted by Corus, which account for around three-fourth of Tata Steel’s total revenue, wiped out most of the operating profit generated by Tata Steel’s Indian operation in the last three quarters. Hence any positive impact of higher prices will drive the consolidated operating profit of Tata Steel significantly.