Market players attending the ICDA’s annual meeting in Paris said that the ferrochromium price could rise above USD 4 per pound in the third quarter of 2008 on tight supply from South Africa and strong demand.

Mr Robert Yildirim president of Yildirim Group said that “All bets are off on how high ferrochromium prices and particularly high carbon ferrochromium prices could go in 2008.”

Mr Yildirim said that the contract price for Eti Krom material could rise by up to 25 cents per pound in the third quarter from USD 3.45 to USD 3.50 per pound in the second quarter. He expects South African benchmark prices to rise by 50 cents per pound to USD 2.42 per pound in the third quarter.

Macquarie analyst Mr Adam Rowley agreed with Mr Yildirim’s optimism and predicted that the price of high carbon material will average USD 3 per pound in 2008. He also said that there could be a 33.3% increase in the price of ferrochromium in 2008.

Mr Vanessa Davidson of CRU noted the soaring costs of freight and coking coal, and said that ferrochromium producers could begin buying their own ships for transport in an attempt to combat the rising freight costs.

Steel is the biggest villain in the current war on inflation. Union Finance Minister P. Chidambaram recently stated in Parliament, “Despite fiscal steps taken by us, some sectors like steel continue to exhibit sharp increase in prices. Steel and steel products contribute about 21.3 per cent of inflation.”
A microanalysis reveals that the iron and steel sub-group has recorded 35 per cent y-o-y escalation in wholesale price index in the week ended April 19, over 9.5 per cent a year ago. The WPI of basic metals and alloys, of which iron and steel is a major constituent, has also shot up 31 per cent annually, causing one-fourth of the overall inflation of 7.57 per cent. Around two-thirds of 12 per cent rise in the ERIL Index of Cost of Project Costs, which measures cost escalation in projects and capital goods, is the result of shooting WPI of basic metals and alloys.
Fuelling the rise in steel prices - a global phenomenon - is a sharp escalation in input costs. Iron ore prices have shot up in the last six months due to a strong demand from China that currently accounts for 45 per cent of global exports. Coking coal shortage is also pushing up steel prices globally, tipping at $1,000 per tonne.
Viewing this as largely a supply-side phenomenon, the government has taken several measures to augment domestic availability of steel products to soften prices. These include reduction in the basic customs duty on pig iron and mild steel products viz. sponge iron, granules and powders, ingots, billets, semi-finished products, hot rolled coils, cold rolled coils, coated coils/sheets, bars and rods, angle shapes and sections, and wires from 5 per cent to nil.
To rein in the prices of TMT bars and structurals, which are commonly used in construction of houses, their import is exempt from countervailing duty of 14 per cent. Basic customs duty on metallurgical coke, ferroalloys and zinc - three critical inputs in steel - has been cut from 5 per cent to nil.
To discourage exports, the government has imposed export duty of 15 per cent on specified primary forms and semi-finished products, and hot rolled coils/sheet; 10 per cent on specified rolled products including cold-rolled coils/sheets and pipes and tubes; and 5 per cent on galvanised steel in coil/sheet form.
Earlier, in the Union Budget last February, import duty on melting scrap was reduced from 5 per cent to nil and the general rate of excise duty brought down from 16 per cent to 14 per cent.
Considering the fact that the country’s steel demand is currently growing by 12-13 per cent, the government is taking steps to augment capacity in the medium term through both greenfield and brownfield capacity expansion. The National Steel Policy has set a production target of 110 million tonnes of steel by 2020 but, according to some forecasts, this may be achieved even sooner.
Producers, particularly prime steel producers, have complained that steep price hikes in raw materials like iron ore, shredded scrap and coking coal have caused steel price hikes.
However, we should share the government’s anxiety over escalating basic metal and alloy prices more from the point of view of their impact on project cost escalation than the common man to whom WPI relates distantly and basic metal prices even more remotely.
But, then, we should also be equally worried that though there are various ways of improving margins even while eschewing steep price hikes, coming down heavily on producers to bring down prices of basic metals and alloys at any sharp uptrend in their WPI should not send wrong signals to future capacity build-up in the sector. Metals and alloys, which constitute critical inputs for construction industry and the machines that make industrial projects possible, entail huge investment and long gestation periods. And here huge stakes are involved.
Thus, encouraged by a buoyant global demand and fast rising domestic consumption, investment in basic metals and alloys has only recently entered the high-growth phase. We need to take care to see that price reductions are not forced to the extent that it impinges on the economic viability of steel units and leads to tardier implementation of projects in this sector.
As of March 2008, only a fourth of Rs 3.07 trillion envisaged investment in metals and alloys was under active implementation with a larger three-fourth still stuck at the drawing board due to various reasons.

By our correspondent

KARACHI: The prices of steel bars in India are way higher compared to Pakistan despite the fact that Pakistan is a net importer and India is a net exporter of iron ore the basic constituent of steel making.

Last week the average price of steel bars in Pakistan was PKR71,900 while the price of domestic Indian bars was INR53,900 Indian Rupees, which is equivalent to PKR91,650. Hence the prices of steel in Pakistan are still less than those in India a press statement of Pakistan Steel (PS) said.

The Indian Union Finance Minister has recently announced a number of fiscal measures focused on augmenting Indian domestic availability of steel products as part of anti inflationary strategy since steel and steel products contributed about 21.3 per cent of the overall Indian inflation. Steel plays an important part in the economy of India the fifth largest steel producer in the world with more than 53 million tonne annual production.

The Minister announced the removal of basic customs duty (BCD) on pig iron and mild steel products. Hitherto, these items attracted BCD of 5 per cent.

Indian Government fully exempted the import of TMT bars used for construction of houses from 14 per cent countervailing duty. The Indian government has also done away with BCD on three critical inputs for manufacture of steel- metallurgical coke, ferroalloys and zinc.

To dis-incentivise steel export, the Indian Finance Minister announced 15 per cent export duty on hot rolled coils/ sheet and 10 per cent on cold rolled coils/sheets and pipes and tubes and five per cent on galvanized steel in coil/sheet form. However, no new fiscal measures were proposed on iron ore exports.

In view of the foregoing, the Indian steel industry was compelled to lower their prices and they can afford it by decreasing a bit of their profits, it is also to be noted that India is a net exporter of iron ore and have vast reserves of coking coal and the value of its rupee is around Rs41 to a dollar whereas Pak rupee is worth Rs69 to a dollar.

The OECD’s steel committee in a release said that World steel market will remain strong while global steelmaking capacity will rise from 1,560 million tonnes in 2007 to 1,849 million tonnes in 2010, representing an 18.6% increase.

Industry and government officials at the OECD’s steel committee meeting said that despite signs of a global slow down, demand for steel will increase with consumption in emerging economies like India, China, Brazil and Russia growing in two digits

Mr Risaburo Nezu of Japan who is the current chairman of the OECD Steel Committee said that ”Global steel demand growth continues to be led by emerging economies, to meet the requirements of expanding industrial sectors and infrastructure growth. Demand growth in many mature economies has slowed in line with weaker economic activity. Global steelmaking capacity continues to increase rapidly. This could impact the market negatively if demand growth slows more than expected.”

He said that “In China, apparent steel use rose by 13% in 2007 to a level of 408 million tonnes. Growth in machinery and automotive manufacturing, shipbuilding and construction are likely to continue to support steel demand going forward.”

It said that “In India, apparent steel use increased to 51 million tonnes in 2007, an 11.3% increase from the previous year. A growing industrial sector and expanding infrastructure building should continue to support steel use in India.”

In Russia, apparent steel use reached almost 40 million tonnes in 2007 and demand should continue to be supported by the oil and gas industry as well as rising household incomes.

The committee said that “Global steelmaking capacity continues to expand rapidly, a trend that is being supported by generally higher producer profitability and positive demand prospects. This development has been enhanced by increased flows of foreign direct investment, as steel companies expand their operations, particularly to emerging economies which allow such investment and where steel consumption is increasing rapidly. Although demand and cost related considerations are the main factors determining the location of investment by the steel industry, concern has been expressed that differences in existing and prospective CO2 compliance standards may also play a role.”

The committee added that “Global steelmaking capacity is projected to rise from 1,560 million tonnes in 2007 to 1,849 million tonnes in 2010, representing an 18.6% increase. Most of this increase will take place in Asia. China will account for around half of the global capacity addition in the 2007-10 period. Several emerging economies such as India, Vietnam and to a lesser extent, Thailand, also have ambitious plans to expand capacity.”