Large steel players increase market share amid continuous price hikes

The large steel mills of the country are expected to report decadal-high profits and a large increase in market share in the second half of the fiscal, given that repeated price hikes are doing little to dent domestic demand for the metal.

Producers have hiked steel prices several times in the past 15 weeks, but with demand from user industries such as auto and construction recovering, buyers have been forced to absorb the higher cost.

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Indian steel prices move in tandem with the global average, which is influenced by Chinese demand. The Chinese government’s $550 billion stimulus to revive its economy has increased the nation’s appetite for steel at a time when steel exporting countries such as Japan and South Korea have curtailed production. This mismatch in demand and supply has sent global steel prices rocketing.

“Globally, steel prices are likely to stay firm as China is not expected to export large volumes due to better balance in their domestic market and there are no other significant exporters in the world market. Given all of this, we believe that the steel demand in the country should grow at least at the rate of gross domestic product (GDP) growth or higher in FY22. Typically, this is the trend in a developing country, though traditionally in India steel demand has been lower than the GDP growth rate,” Tata Steel managing director and chief executive officer T.V. Narendran said.

Indian steel prices have always been pegged just marginally below that of imported steel and steel mills have been able to increase prices in keeping with the global trend, allowing them to make profits. However, this advantage appears to apply only to large integrated players who have their own iron ore supply and comes at the cost of smaller steel producers.

Historically, Indian steel production has been split more or less evenly between the large integrated players, such as Tata Steel, SAIL and JSW Steel, and smaller secondary steelmakers. However, with covid forcing out many marginal producers out of the market, the larger players have gained a bigger piece of the pie.

The top six steel producers increased their market share in crude steel production to 65% in December, against a historical average of 55% while their capacity utilization has risen to 85% against an average of 78% until then while that of secondary players fell to 65%, according to credit ratings agency ICRA. “These trends indicate the rising dominance of large steel players in the domestic industry and an adverse impact of pandemic on the business performance of some smaller steel producers, which would find it difficult to operate at pre-covid levels in the near term,” ICRA said.

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