The domestic steel industry (especially the non-integrated players) is likely to face pressure on margins in 2008-09 due to increasing input costs on one hand and the curtailed pricing flexibility on account of government actions on the other. The raw material price rise will also start getting reflected fully only from the second quarter of 2008-09. However, in 2009-10 and beyond, if the domestic market pricing is devoid of influence from the government, profitability of the domestic steel industry is expected to remain healthy. The extent of profitability will also be a function of share of exports in the product portfolio of players.According to CRISIL Research, global steel prices will remain firm in the foreseeable future at around $ 750-850 per tonne level. The tight demand-supply equilibrium will give pricing power to the industry, which in turn is likely to able to pass on most of the increase in input costs to the buyers. The prices in the global steel industry will be moving in such a fashion so as to ensure the current levels of operating margins at around 18-20 per cent are maintained for global steel players. Our calls on steel prices are based on the expected firmness in the medium term in contract iron ore prices (currently $132 per tonne FOB Brazil to Europe), coking coal (currently around $300 per tonne FOB Australia) and coke (around $500 per tonne FOB China) prices.
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