Net profits of companies such as JSW Steel, Bhushan Steel & Strips, Uttam Galva Steels and Monnet Ispat ranged between 50 per cent and 103 per cent on the back of better realisations during the previous financial year.
If a similar performance could be repeated for another six months, going by the current signals, the prospects for the current year look better than those in the previous year.
Steel prices increased two to three times till June last year, after which they started softening. From August, the international prices started weakening, which reflected in the domestic prices and the first cut in the prices came in September.
The market was flat till February, when the first increase took place. The new financial year has begun on a strong note and is expected to continue for the coming few quarters.
World Steel Dynamics, one of the leading information services, has issued an early warning of steel shortage and if that happens, the hot-rolled price band may breach $700 a tonne.
The forecast in February said the price band would be in the range of $600 and $725 a tonne. The export price, currently, is $620 a tonne. There are a host of factors that go a long way to indicate that the forecast may hold water.
The global finished steel consumption is expected to touch 1.178 billion tonnes in 2007, a growth of 5.8 per cent.
Moreover, the policy initiatives announced by China to discourage exports imply that there will be less steel in circulation in the world market. It is estimated by certain steel analysts that the net steel exports from China in 2007 will decline to 10 million tonnes compared with 25 million tonnes in 2006.
Industry sources said the domestic steel prices would follow the international trend, unless, of course, they are kept artificially low, as it is currently done, to help the government rein in inflation.
It will therefore make sense to focus on what international steelmakers are saying. Arcelor Mittal, the world's largest steelmaker, has said 2007 would be better than 2006. Nippon Steel, which ranks second, expects robust demand from automakers and shipbuilders. Nippon feels there will be a tight supply of medium-high grade steel, with the growing market demand from automotive, shipbuilding and energy sectors.
This could augur well for domestic steelmakers, who are in the process of increasing the share of value-added steel in the product mix, which also means better margins.
But industry sources pointed out that there could dampeners. For instance, the fears of a slowdown in the US economy and its impact on the global demand for steel could spoil the party.
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