No Reason For Domestic Steel Prices to Fall Further: SAIL Chief

State-owned manufacturing behemoth Steel Authority of India Limited (SAIL) will look to further reduce operating capacity to 40% from May 7 onwards from around 52% capacity utilization in April amid the prevailing pandemic-induced nationwide lockdown, Anil Kumar Chaudhary, Chairman, SAIL, said during an online interaction with SteelMint.

From 55-60% capacity utilization in mid-March, production has gradually been scaled down with inevitable inventory pile up from March through to the first week of May. SAIL wants to dispose of at least 25% of the inventory in May, Chaudhary informed.

Inventory Liquidation

"The current 2 MnT inventory with SAIL is not a worrisome issue as most integrated producers are sitting on sizable inventories today and those can be liquidated. SAIL had about 2 MnT inventory on October 31, 2019, but we disposed the material quickly once demand started picking up in the market. Even during the lockdown, we have recorded sales of 200,000 tonnes in April, which is just 20% of sales achieved in April'19, and this month we aim to reach about 60-70% of the actual sales volume recorded in May 2019. So we would like to dispose of at least 25% of our inventory in May," said the steel industry veteran who has over 34 years' experience in SAIL.

Some of the domestic downstream industries are opening up and demand for material from the integrated producers is slowing rising. The secondary sector has been paralyzed during the lockdown due to over-dependence on contractual labourers but operations will resume, albeit, at a slow pace, he assured. "Liquidation of inventory is therefore not a big issue for integrated producers as the secondary sector has been forced to discontinue operations during the lockdown," he said, adding there is strong demand in the market which has only temporarily evaporated due to the lockdown.

'No Reason Why Prices Should Fall'

"With little or no production by the secondary sector during the prevailing lockdown there is no reason why domestic steel prices should fall further," contended Chaudhary. "We have rolled over prices for March. We haven't reduced prices. If international prices go up, SAIL would raise export prices for its products which, in turn, have a bearing on domestic prices," he said.

"Export prices are fluctuating at the moment both for HRC and semis as well as pig iron. Once domestic demand picks up SAIL would be looking towards maximum domestic sales. There is no reason why domestic prices should be at the export parity level. The anti-dumping price for HRC, representative of flats prices, is $489 per tonne. There is no reason for domestic prices to be lower than that level," he contended, adding that raw materials prices - especially that of premium coking coal which has fallen below $110 per tonne - will remain subdued in the coming 5-6 months due to demand dearth attributable to the slow and gradual ramp-up in manufacturing activities. Cost of inputs will remain subdued due to slow demand growth from the secondary sector. This will help the integrated sector optimize the cost of production, he argued.

Production in FY21 faced the initial Covid-19 jolt in end-March and April and it will surely fall below the over 16.5 MnT recorded in FY20. Crude steel production in Q2, 3 and 4 of FY20 have been recorded at 3.89 MnT, 4.022 MnT and 4.308 MnT respectively. All of SAIL's furnaces are ready for the full ramp up, even those that have been banked in a hot condition can be ramped up to 90-100% on short notice, said, Chaudhary.

~ By Nirmalya Deb