Global steel price surge in contradivtion to government efforts.

A surge in international prices of steel over the past one week and a commensurate fall in exports from China may well negate the Indian government's hopes of cooling steel prices by slashing import duty to nil in the hope of increasing supplies. The government last week abolished customs duty on pig iron and mild steel items as well as metcoke, while imposing a 5-15% export duty on steel products. But during the week April 25 to May 2, export price of pig iron from CIS spurted 32% to $700 per tonne, while export of heavy plates from Latin America too was up 30% to $1,295 per tonne.

Indian producers such as Tata Steel, Steel Authority of India Ltd (SAIL) and JSW Steel, nudged by the government, have however promised to hold prices for the next two to three months. The surge in global prices will now increase the differential between domestic and international price, thereby negating higher imports to ease the supply-side issues and prices.

Meantime, the government's silence on rising input costs may further aggravate iron ore supplies at least for non-integrated steel companies or those without captive mines. All expectations of an stiffer export tax on iron ore exports was belied with the government not changing the existing levy of Rs 300 per tonne for ore with ferric content higher than 62% and Rs 50 per tonne for lower grades. This may prove too expensive for steel producers. They are now likely to face another spurt in iron ore prices.

Australian miners are expected to clinch a deal with Chinese steel companies wherein contracts are priced 80% more than last year, against the initial negotiations based on a 65% increase. Indian public sector mining companies such as NMDC has already announced a 50% increase in iron ore prices for supplies to Indian steel companies based on the 65% anticipated increase in contracts between Australian miners and Chinese steel producers. Now the 80% hike that is expected to be signed, it will give further headroom for Indian mining companies to go in for further price increase.