Steel prices are expected to remain firm in 2008 as supply side constraints continue to persist with major greenfield projects hitting roadblocks due to delays in acquiring land.
"Notwithstanding government pressures to bring down prices, we believe that global price movements, strong demand and rising production costs would continue to dictate the trend in domestic prices," the Centre for Monitoring Indian Economy (CMIE) said in its monthly report in Mumbai.
In a bid to fight inflation which has touched a three-and -a-half-years high, leading Indian steel firms bowed to government pressure to cut prices last week, pledging 5-10 per cent reductions.Supply side constraints
In a buoyant demand scenario, supply-side constraints continue to persist with major greenfield projects hitting roadblocks due to land acquisition delays, CMIE said.
Capacity constraints faced by the steel sector impeded production growth, which halved from 12.7 per cent to 5.6 per cent year-on-year during April-February FY'08. For the full year, CMIE estimate steel production to touch 52.3 million tons (MTs).
In view of no major capacities coming onstream, its projects steel production to touch 60 MTs in FY'09.
On the estimated base for last year of 52 MTs, steel production growth in FY'09 comes to 14.7 per cent. However, the Joint Plan Committee revised its annual figures, upwards for the last 2-3 years.
In the case of an upward revision in the provisional figures of FY 08, the actual growth in steel production in FY 09 would turn out to be less as compared to CMIE estimates. High consumption level
Backed by strong consumption, which rose at double the pace of production growth, coupled with high input costs, hot rolled coil prices rose by 32 per cent during January-April.
In the backdrop of rising inflation and steel having a 3.6 per cent weight in the wholesale price index (WPI), the government has taken a host of fiscal measures to rein in rising steel prices.
CMIE believes that the import duty cuts proposed on various raw materials used in steel-making would result in marginal savings for steel companies as the tariffs were already ruling at rock bottom levels.
Further, the imposition of export duty on hot rolled and cold rolled coils would have an insignificant impact as the demand for these in the domestic market remains robust, CMIE report added.