Steel firms’ pricing power to improve on Chinese revival

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Domestic steel companies are likely to witness better pricing power on the back of lower steel imports into India as demand for steel in China improves.

The health of China’s steel sector is expected to improve in March, according to the latest Platts China Steel Sentiment Index (Platts CSSI), which showed a reading of 74.05 out of a possible 100, up 17.19 points from the February level of 56.86. This would result in more steel consumption within China and reduce exports, industry experts said.

Domestic companies are expected to have a better pricing power as this would result in less import. This year India had to focus on exports as demand significantly declined in the domestic market and steel companies failed to increase prices in line with their input costs.

Jayant Acharya, director commercial and marketing at JSW Steel, said, “If demand in China improves, it would result in reduction in steel import. Domestic players will have a better pricing power.”

Acharya said that while demand for steel in China is expected to improve stringent pollution norms in the country is also resulting in reduction of production in China. Thus inventory levels in China are expected to decline fast and the country would focus mainly on domestic consumption rather than exporting to other countries.

“The survey for March suggested that China’s steel sector expects improved orders to allow it to lower inventories and boost prices,” said Tomas Gutierrez, Platts managing editor for China metals. “Construction activity is poised to pick up in the usually warmer month of March and this could help bolster steel demand for some products.”

Analysts also said that globally steel prices may improve if demand in China increases. However, that may trigger an increase in raw material price also.

Bhavesh Chauhan, an analyst at Angel Broking, said, “Due to strict pollution norms many steel plants are shutting down in China. This will reduce the existing inventory in the country.”

Chauhan added that this would help in recovery of steel prices globally. Sanjay Jain, an analyst at Motilal Oswal also said that steel companies will benefit if demand in China improves as the positive sentiment is expected to revive.
 

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