Sunday, March 07, 2004
The secret of steel price hikes
I had been reading with interest in the Indian press about rising domestic steel prices. This was interesting because recent cuts in import duties (5%) clearly weren't helping cool the price of steel. So, I was wondering what was causing international steel prices to rise so fast. Indrajit Basu has a one-word answer -- China. Apparently, the attempt to overhaul infrastructure in time for the Beijing Games, was causing the Middle Kingdom to consume so much steel so as to become the largest ever buyer of steel in history.
Indeed, driven by an economy that is reportedly growing at over 8 percent, combined with the colossal facility and infrastructure development in preparation for the 2008 Olympic Games in Beijing, China has emerged as the largest steel consumer, accounting for one quarter of the world's total steel usage which in turn has resulted in the global demand for steel vaulting to record highs. Global prices for finished steel - hot rolled coils - has almost doubled to a peak of $580 per ton in the past nine months.
In India, too, the rise of steel prices has been equally spectacular. Industry sources say that steel prices rose 12 times in the past year, but the rise has been particularly sharp since August last year. Prices of hot rolled coils, the key ingredient for downstream steel products, shot up from $400 per ton in August 2003 to $511 per ton in the beginning of February. And in one of the highest one-time price hikes in recent years, domestic steel manufacturers increased the price of hot rolled coil by up to $90 per ton last week, to take it to the all time high of $600, effective from March. That's a 17 percent rise in less than a month.
Small wonder then that the impact of China's huge appetite for steel on the India's steel industry has perhaps been greater than any other steel industry elsewhere in the world. But there's yet another reason why China's hunger for steel has rattled the country: despite the fact that at almost 255 million tons per year, China's steel consumption is almost eight times than that of India's, the country has had the highest rate of increase in market share of Chinese steel imports in 2003. In other words, India's steel exports have increased multifold over the past few years, thanks solely to Chinese demand, which is also flushing out some of the steel meant for the domestic market.
India's gain from growth in the Chinese steel market has been so lucrative that presently, reckon industry sources, about half of India's 5.5 million tons of annual steel exports go to China. This had caused the trade balance to swing in India's favor for the first time in 2003. Chinese demand today accounts for a major part of the country's largest steel makers' exports: 29 percent of Tata Steel's exports, 35 percent of SAIL's and 35 percent of Essar Steel's.
Indeed, driven by an economy that is reportedly growing at over 8 percent, combined with the colossal facility and infrastructure development in preparation for the 2008 Olympic Games in Beijing, China has emerged as the largest steel consumer, accounting for one quarter of the world's total steel usage which in turn has resulted in the global demand for steel vaulting to record highs. Global prices for finished steel - hot rolled coils - has almost doubled to a peak of $580 per ton in the past nine months.
In India, too, the rise of steel prices has been equally spectacular. Industry sources say that steel prices rose 12 times in the past year, but the rise has been particularly sharp since August last year. Prices of hot rolled coils, the key ingredient for downstream steel products, shot up from $400 per ton in August 2003 to $511 per ton in the beginning of February. And in one of the highest one-time price hikes in recent years, domestic steel manufacturers increased the price of hot rolled coil by up to $90 per ton last week, to take it to the all time high of $600, effective from March. That's a 17 percent rise in less than a month.
Small wonder then that the impact of China's huge appetite for steel on the India's steel industry has perhaps been greater than any other steel industry elsewhere in the world. But there's yet another reason why China's hunger for steel has rattled the country: despite the fact that at almost 255 million tons per year, China's steel consumption is almost eight times than that of India's, the country has had the highest rate of increase in market share of Chinese steel imports in 2003. In other words, India's steel exports have increased multifold over the past few years, thanks solely to Chinese demand, which is also flushing out some of the steel meant for the domestic market.
India's gain from growth in the Chinese steel market has been so lucrative that presently, reckon industry sources, about half of India's 5.5 million tons of annual steel exports go to China. This had caused the trade balance to swing in India's favor for the first time in 2003. Chinese demand today accounts for a major part of the country's largest steel makers' exports: 29 percent of Tata Steel's exports, 35 percent of SAIL's and 35 percent of Essar Steel's.
