Global downturn grips metals

Signalling a downturn in the metals cycle, leading steel producers like Steel Authority of India Ltd, Essar Steel, Jindal Vijaynagar and Ispat Industries on Wednesday announced a price correction of Rs 2,000 per tonne, even as the country's top aluminium companies, Nalco and Hindalco, cut prices by Rs 2,500 per tonne.

CR Pradhan, chairman and managing director of Nalco, said domestic prices had been cut following subdued trends on the London Metal Exchange.

The LME cash price of aluminium has come down from $2,100 per tonne in March to $1,700 now, a drop of 23.52 per cent.

Aluminium analysts said a slower rate of drawdown of LME inventories was being forecast on account of increasing production in the West. The analysts also pointed out that China had stalled all purchases of aluminium in anticipation of the appreciation in its currency.

In the case of steel, too, the "correction" has resulted from a softening of prices in world markets. Global prices of steel in the last two months have fallen by $120 to about $480 a tonne.

It is worth noting that global steel majors, including Mittal Steel and US Steel, had recently said prices were expected to fall by as much as $100 per tonne owing to Chinese steel producers ramping up capacities.

Mittal Steel had, in fact, said it would curtail production during the current quarter in order to shore up prices.

Sail was the first to announce a correction of Rs 500-2,000 per tonne in the day. In other words, the company will not change its list price but will offer discounts of this amount. "The discount on flats will be closer to Rs 2,000 per tonne," Sail said.

Though the discounts offered by Sail on long products cold be less, it will force others in the business to lower their price tags. YS Sagar Rao, chairman and managing director of Rashtriya Ispat Nigam Ltd, said the company would have to adjust prices over the next couple of days.

A Tata Steel spokesperson, however, said the company had long-term contracts for the bulk of its offtake and had decided to maintain the status quo .

Seshagiri Rao, director (finance), Jindal Vijaynagar, said prices could pick up again after two months. "Coal and iron ore prices are at the same level and if prices do not appreciate in a couple of months, it will hit the bottom lines of non-integrated steel companies," he said.

But most steel players see the price cut as a market-driven correction and do not expect it to impact their expansion plans.

If the ambitious plans that have been drawn up by most steel producers are completed on schedule, the next two years will see capacity in the country increase by at least 6-10 million tonnes with each million tonnes costing about Rs 800 crore (Rs 8 billion) in capital expenditure.