Weak demand hits pricing power of steel firms

Pricing power of steel companies is constrained because of weak demand for the metal, Nomura India said in its latest research report.

Against an expected demand growth of 4.5-5.0 percent, consumption of steel grew a mere 3.3 percent year-on-year (y-o-y) to 73.3 million tonne (mn t) in 2012-13, the report said.

Domestic prices of steel is lower than import parity prices owing to weak demand for the commodity.

However, the gap between the domestic and international price has declined to 4-5 percent from the highs of 8-10 percent last month.

The gap declined because global steel prices fell 5-6 percent in the last one month, while domestic steel prices remained largely flat.

Some analysts expect steel demand to be muted in the near term as reflected in weaker auto volumes as well as overall industrial activity remaining slow.

Therefore, pricing power is expected to remain weak with Indian steel companies in the near term. The gap between the domestic and international steel price may remain in the range of 3-5 percent, Nomura India said.