MUMBAI: While steel consumption-growth in India is outstripping production, prices will weaken afresh before stabilising, analysts said, pointing to the sudden rise in Chinese exports and the miasma of slowdown over the US and Europe.

"With increased global consolidation and significant greenfield project constraints, price cycles have been compressed with higher peaks and bottoms. Hence, a hot rolled price below $800-850 per tonne looks unlikely in the short term," say Pallav Agarwal and Amit Mitra of ICICI Securities.

However, global demand-supply is in balance due to downgrade in Chinese demand growth, they said in a note last Monday.

"Global steel demand is expected to grow 6%, driven by India (10%), China (10%) and the Middle East (8.4%) in next 3-5 years," they said. Input cost pressures continue due to the global triopoly in iron ore supplies, they added.

Agarwal and Mitra expect prices, which have been weak due to a spike in Chinese steel exports and concerns over US and EU slowdown, to stabilise going forward. Also, price discovery mechanism for steel, based on negotiated contracts, more closely reflects demand-supply. The absence of speculative liquidity inflows into steel will prevent global sell-offs, similar to other LME-traded base metals, they said.

Meanwhile, with Indias steel consumption growth outstripping production, and with mills operating at full capacity, the country will import an increasing quantity of the alloy, top government officials said on Saturday, which could ease prices anew.

Indias steel production is expected to rise 6% in the year to March 2009,and demand is seen growing around 12%. It aims to raise its production to 124 million tonne by 2012 from 58.64 million tonne currently.

In the five months to August, steel production growth was just 4.2%, below the 5.2% seen in 2007-08 and 12.8% in 2006-07,steel minister Ram Vilas Paswan told a steel consumers conference.

"Production is at its peak. Till new plants are not installed, our production will be at the same level," he said, adding that the 2012 target would be met.

Since April, India has imported 3 million tonne of steel, 50% more than the same period a year ago, steel secretary Pawan Kumar Rastogi said. The country imported 6 million tonne of steel in 2007-08.

Rastogi did not say how much of steel was likely to be imported by March, saying it depended on prices and demand.

He, however, said there was a likelihood demand could come down as the real estate sector in India slowed on seven-year high interest rates and a slowing economy.

Leading steel firms like South Koreas Posco and Arcelor Mittal are planning to set up steel plants in India, attracted by the growing demand and ample reserves of ore.

State-owned Steel Authority of India Ltd and National Mineral Development Corp are also investing in steel mills.

 

Source : DNA