With the global economy recovering gradually, there is a strong need to understand the movement in downstream steel markets, along with the volatility in raw material prices. IPF will publish the prices of Steel and other materials, manufacturing companies consume regularly. Contributed/compiled by experts in their respective fields.

The Indian Long Product Price Index (ILPPI) continued its upward trends with 62 points in mid-April, whereas the Indian Flat Products Index (IFPPI) had gone down by 11 points. The overall price index INDSPI declined by 27 points.

Pencil ingot prices have been trudging back to normalcy after the early month debacle imparting a modicum of rationality to the input material market and kindling faint hopes of a revival in the long product market as well.

In fact, pencil ingot prices went down on April 18. Although the improvement in price levels can still be imputed to the speculative melodrama building up but part of it can be an outcome of demand supply mismatch as with the unfolding of summer power cuts become rampant at the most production centres.

At the same time hike in coke and sponge iron prices as the international prices for these products pick up having a backlash on the domestic levels as well has maintained the cost push.

The gap of nearly Rs 5000 per tonne to Rs 6000 per tonne between the ingot prices and TMT bar prices is disproportionately bloated giving the furnace owners another Rs 3500 per tonne to Rs 4000 per tonne to play for.

At the same time the downstream TMT prices have remained depressed throughout, obfuscating any chance of real revival unless the demand picks up either for consumption or for stockpiling.

On the other hand, flat product prices in India continued on weakening trend last week - in sync with global trends.

Indian MNCs like Tata Steel confirmed this and said that domestic steel prices were not likely to go up but the pressure on margins was likely to continue due to higher input costs.

SAIL to Increase Output

"Even if the input costs are high, steel producers cannot raise prices as there is a surplus of steel in the international market, which will lead to imports," Company Director, Mr J J Irani, was quoted as saying.

However, he said, the pressure on the margins is likely to continue for some time. Mr Irani said the high input prices will not sustain and producers of coking coal and iron ore are likely to soften the prices in another six months, price particularly of iron ore.

There is also good news on another side, supplies. Steel Authority of India Ltd (SAIL) expects its installed capacity to increase by about two third to 24 million tonnes by the end of 2012-13. This is when it's much talked about Rs 70,000 crore modernisations and expansion plan is expected to be completed.

Shri C S Verma, Chairman of SAIL, said that of this, about Rs 10,500 crore is being spent on mechanising the mines.

SAIL expects to commission its Burnpur facility this year, which will increase its capacity by 3 million tonnes.

SAIL produces around 14 million tonnes of steel and accounts for 20% of the country's output, estimated at 70 million tonnes.

Shri Verma said he expected steel demand to continue to grow ahead of the GDP rate at around 10%. He estimated that domestic demand would touch 110 million tonnes by 2012, 180 million tonnes by 2020 and some 500 million tonnes by 2050.

Meanwhile, DNA has reported that SAIL expects to receive feedback from Hatch Associates of Australia, a consultant earlier appointed by SAIL, for preparing a detailed project execution report in 3 to 4 months for the development of China Iron Ore Mines with an estimated reserve of two billion tonnes of high grade iron ore.

Natural Gas

Gas prices gained around 4.5 per cent on the NYMEX in mid April and closed at US $4.215/mmBtu on April 15. Prices traded higher mainly on the back of weakness in the US dollar. A report released by the US Energy Department showed that natural gas stocks increased less-than-expected by 28 billion cubic feet (bcf) for the week ending 8th April. On the MCX, prices of natural gas surged by 5.3 per cent to close at Rs 187.5.

BHP Billiton, the world's biggest mining house, has reported a 7 per cent jump in iron ore production for the third quarter but warned that persistent rains in Australia continued to curtail its coal operations.

The company's production of steel-making coal is mostly centred in the Bowen Basin in northeast Australia, which was inundated by record floods in the March quarter. BHP Billiton said wet conditions were likely to continue to impact its operations there for the remainder of calendar year 2011.

"Force majeure remains in place for the majority of our Bowen Basin products with production, sales and unit costs likely to be impacted, to some extent, for the remainder of the 2011 calendar year," the miner said in a statement.

BHP Billiton's production of iron ore, its biggest single commodity, jumped to 33.2 million tonnes in the March 2011 quarter, up 7 per cent from a year earlier.

The north Australian floods of 2010 sent steel-making coal output tumbling 18 per cent from a year earlier.

BHP Billiton is the world's largest supplier of traded hard coking coal, via a joint venture with Japan's Mitsubishi Corp., and is also the third largest iron ore producer -- positions that have enabled it to reap record profits from surging demand from Asian steel-makers. In iron ore production, BHP ranks behind Brazil's Vale and Britain-based Rio Tinto.

Crude Oil May Fall Further

Crude Oil prices came under pressure in mid April, on news that Libya had accepted a peace plan including an immediate ceasefire.

A warning from The International Energy Agency (IEA) that high prices could grind down oil demand also put pressure on the commodity. In addition to this, weak sentiments in the global financial markets also exerted pressure on oil prices.

Prices declined by 2.8 per cent and touched a low of US$ 105.3l/bbl as of April 19. Depreciation by the domestic currency resisted sharp decline in prices on Indian bourses.

In international markets, Crude prices last traded near US $107 per barrel. MCX Crude future prices are likely to fall further on profit booming and could touch US $103-100 levels within next few trading days. According to some analysts the support for Crude is seen at Rs 4800 and below it; prices can test Rs 4750 while the resistance levels are seen at Rs 4850 and Rs 4900 respectively. Short-term range for MCX Crude April contract is seen at the Rs 4700-5000 level.

Lead Futures Trade

on the Rise

Lead futures at global markets reversed early losses early in the third week of April, with investors focusing on a more positive technical outlook, with some in the market viewing the recent reserve ratio hike as a step closer to the end of the monetary tightening cycle in China.

China's central bank has recently said that it would raise lenders' required reserves by 50 basis points, the fourth time this year it has made such a move in base metals Lead futures at India's Multi Commodities Exchange are trading on a higher note. Lead April contract rose by 0.25 per cent to Rs 121 per kilogram.

Lead looks to stay above Rs 120 for the near future. A Commodity Online analyst said that if Lead future crossed the Rs 121 mark then we could see a rally of up to Rs 125 in the near term.

Copper Futures Set to Rise

In copper, another commodity in strong demand from China and other rapidly industrialising nations of Asia, BHP Billiton reported a 19 per cent jump in March quarter output, from a year earlier when production had been disrupted by a mine accident. Copper futures at global markets rose on April 18, paring previous session's losses with support from a positive near-term technical outlook.

Meanwhile, copper futures at India's Multi Commodities Exchange are trading on a slight higher note.

The April contract copper had been trading at Rs 414.15 per kg, up by 0.01 per cent, as of April 19.

The contract traded at a high of Rs 414.70 per kg and a low of Rs 412.90 per kg. Volume traded is 10468 kg so far and open interest was 30428 lots.

The three-month copper on the London Metal Exchange rose 0.2 per cent to US $9,244 a tonne. Copper fell more, the market's sixth consecutive daily decline as on April 18.

However, the market still remains under pressure after S&P's warning on the US government's credit outlook.

Logistics

According to SteelGuru.com, Oragadam was turning into a twin town of Sriperumbudur and an automobile and FMCG centre in its own right.

India has been experiencing significant development over the last decade, continuously clocking a growth rate of around 8-10 per cent. Logistics costs in India are high at 13-14 percent of GDP compared to 8-9 per cent for developed countries, it said. The Government has been promoting the logistics sector by allowing 100 percent FDI, eliminating CST, introducing

VAT, improving multi-modal transportation through projects such as dedicated freight corridor, encouraging public private partnership (PPP), and allowing 100 per cent income-tax exemption for port development projects.

Several logistics parks have come up across major cities such as Mumbai, Kolkata, Chennai and Hyderabad and are witnessing significant investment in infrastructure.

Oragadam, being close to Chennai, is one of the fastest growing industrial towns, SteelGuru said.

The township has great connectivity benefits, being through major roads such as Oragadam Industrial Corridor Road, ECR, as well as having access to the Chennai port, Chennai railway station and an international airport within 25 km.

Oragadam Draws Huge Investments

Oragadam, has seen some major investments by large Indian and global players (automotive, FMCG/durables, and industrial products) during the last few years due to a special boost provided by the Tamil Nadu government and establishment of the SIPCOT Industrial Estate covering approximately 2,000 acres.

Across the automotive industry, Oragadam represented an excellent hub for manufacturing and distribution, as more than six automotive OEMs and over 50 suppliers are located in close proximity (less than 20 km) of each other in the Oragadam-Sripeum budur cluster. Reputed automobile manufacturing companies have already established units there.

Renault Nissan has set-up a car-making facility spread over 640 acres near Oragadam, with a planned investment of Rs 4,500 crore and full ramp-up capa-city of 400,000 units per year. Oragadam could be a regional manufacturing and distribution point for FMCG and consumer durable products. Indian logistics players such as DHL, Realtime Logistics, ShriKailash Logistics plan to set up their respective logistics hubs in this region. N

Metal Contracts as on 23/4/2011

Copper April 11 contract was up by 0.85% to Rs 428.05 per kg
Nickel May 11 contract was up by 1.45% to Rs 1197.20 per kg
Aluminium April 11 contract was up by 0.96% to Rs 121.40 per kg
Alumini April 11 contract was up by 0.91% to Rs 121.35 per kg
Lead May 11 contract was up by 0.47% to Rs 118.15 per kg
Lead mini May 11 contract was up by 0.51% to Rs 118.20 per kg
Zinc April 11 contract was up by 0.67% to Rs 104.75 per kg
Zinc mini April 11 contract was up 0.62% to Rs 104.75 per kg
Iron ore May 11 contract was down by 0.81% to Rs 6710.00 per DMT.

ENERGY:

Natural gas June 11 contract was up by 0.75% to Rs 201.50 per MMBTU
Crude oil May 11 contract was up by 1.09% to Rs 5005.00 per barrel.