The Re-Beginnan | Vol.2 | Issue 33
What's the deal
Like every other industry, the steel industry was impacted significantly at the start of the lockdown due to the coronavirus pandemic. However, the industry has seen a V-shaped recovery in recent months on the back of an economic revival. Having said that, a shortage of raw materials such as iron ore and possible cartelisation by steel manufacturers has pushed the price of steel to record levels. Let’s have a look at the impact of the increase in steel prices on the economy.
The Remarkable Increase in Steel Prices
During the initial months of the lockdown, steel companies saw destruction in demand. Companies had to look at strategizing and surviving in the industry and had to rely on export markets. Being used in almost every sector, domestic steel demand took a huge hit due to the closure of economic activities.
However, according to the Ministry of Steel (Government of India), the domestic steel industry started showing signs of improvement from June. Since then, the steel demand has been rising significantly owing to improving market conditions. Compared to the previous year, the price of steel has risen by nearly 58% to INR 51,000 per tonne in December 2020. Besides the increase in domestic demand, one of the key reasons behind the surge in steel prices has been the increase in iron ore costs (raw material for steel). The increase has come from a shortage in iron ore supply led by the closure of iron ore mines. Additionally, rising exports of iron ore to other countries (primarily China) has also led to a supply crunch in India. The price of domestic iron ore across grades has doubled from INR 4,000 per tonne to INR 8,000 per tonne on average, causing a spike in the production cost of steel.
It is also alleged that there is a cartelisation by steel manufacturers which has led to an increase in steel prices. Steel prices have a cascading effect on other sectors. Sectors such as automobile, real estate and infrastructure are highly dependent on steel as a primary raw material. Hence, any upward movement of steel price increases the risk of the project being delayed and might impact the profitability of the project. This was highlighted by our Union Minister, Nitin Gadkari who said-
“There has been a 55% hike in steel prices in the past six months. I have written to the PM and Steel Minister (Dharmendra Pradhan) for a decision on this. A long-term policy is needed for steel and cement manufacturers… a uniform policy. Had the price hike been in the range of 15–20%, it could have been justified but it was abysmally high.”
Closing note…
The price of steel has spiked significantly for multiple reasons and has been having an adverse impact on other industries, impacting the end consumer. The performance of steel companies has been improving, evident by the rising margins posted in Q3FY2021. In the short term, the prices of steel are set to sustain led by a strong economic revival.