Sunday, January 4, 2009

Good Sign?

Steel offtake rises 30-40% on higher demand

Ambarish Mukherjee

New Delhi, Jan. 3 Through the grey of Delhis foggy skies a little ray of hope appears to be shining on one of Asias largest steel markets the Loha Mandi in Naraina. Traders are looking much happier now than they were during Diwali because offtake has increased by 30-40 per cent since mid-November.
They attribute it to a significant and sudden rise in demand for long structural products, which has gone up by around 30-40 per cent. But prices have come down from an average of Rs 48,000-49,000 a tonne in August to around Rs 32,000-33,000 a tonne now.
Demand for flat steel, too, is growing but at a lower pace of 5-10 per cent, traders said.
The Naraina Loha Mandi houses around 1,000 shops that sell every possible steel product, from heavy plates to the thinnest wires.
According to the traders, the pattern of growth is different for the long and flat products. For long products the growth is from new demand, while for flat items it is a combination of new demand and import replacement after the Government put HR steel on the restricted list of items for import on November 21 last year.
A trader in long products, Mr Gurucharan Arora, said, Sales have picked up in the past two months and now reaching normal levels. Explaining the reason, he said, The builders who had put their projects on hold have started buying.
Officials in the countrys largest steel manufacturing company Steel Authority of India Ltd (SAIL) also agree. Demand for long products has increased by around 15 per cent in the last few weeks, mainly on Government buying. If things continue the same way, the market may stabilise by January end or February, SAIL sources said.
There are still many uncertainties which is holding back latent demand, but the import duty on construction steel imposed on January 2 will increase demand further, he said.


However, despite sales picking up traders are cautious. The President, Naraina Iron & Steel Merchants Welfare Association, Mr Raj Kumar Jain, said, Traders are avoiding holding ready stocks and are mostly lifting on transaction basis. Though demand is picking up, many traders have strong liquidity problems. Stocks are down by 50-60 per cent compared to the peak levels in July/August 2008.


Interestingly, however, though the actual physical amount of steel sold is increasing, it is not reflected in the official volume figures because the steel market is down.
According to Mr Jain, this is because when the market is up, the same stock changes hand several times before reaching the consumer with three to four people making money out of the entire chain of transactions. At each stage it gets recorded as sales and the sum goes up, he explained. But in the present scenario, middlemen have fled the market and only the actual users are buying. These are real volumes, he said.

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