A 5 per cent depreciation of the Indian rupee against the dollar since April this year has failed to help the steel makers to export their wares in the international markets which too is witnessing sluggish offtake and depressed prices.

The upshot? Rising stockpiles on the home front putting price pressure on cross section of players.

The decline in the overall galloping growth of the domestic automobile sector and the ongoing sluggishness in the infrastructure and construction industry too has contributed to the woes of the steel products makers, all of whom had increased their production by over 12 per cent in the first quarter of this year.

The international demand continues to remain sluggish as steel buyers are already over-supplied with products of higher costs.

This, executives of steel companies say, is because the buyers had bought more than required products fearing high steel prices to go up in further in the first-quarter of this year. The hot rolled (HR) coil prices for example had shot up to over $313 per tonne from $275 in Dec last year. Currently, these are quoted at under $210 - $215 per tonne.

However, since the past couple of months the international prices of HR coils for example has slid by over 18 per cent - 20 per cent since the last two months. From over $275 - $280-plus per tonne in mid-March, the HR prices are currently ruling at around $210-215 levels. Thus, since the past six months the international prices has slumped by over $35 - $40 per tonne. Further decline is not ruled out as the global steel market is known to be oversupplied.

Against this scenario, the depreciated rupee was expected to help the Indian steelmakers compete in the oversupplied global markets with cheaper products. But it has not. With sluggish demand from the domestic auto, white goods and the projects sector, what has resulted instead is rising stockpile in the domestic market, putting pressure on various steel products makers.For example, last week, Tata SSL is understood to have announced cut of Rs 1,000 - Rs 1,500 per tonne in its prices of steel products, even as the Steel Autuority of India Ltd chairman Arvind Pande reportedly confirmed that there is sluggishness in demand, but will not `initiate' price war, indicating that there are signs of intense pressure that could lead to price war in the domestic steel market.

Falling steel prices since the past two months coupled with stagnant domestic demand has put a tremendous pressure on almost all the steel makers, including SAIL. The step taken by Tata SSL has "created problems for other players in the field" said an executive of a leading steel company requesting anonymity.

"There is no demand from any of the three main steel flats consuming sectors", said a steel analysts with a leading credit rating agency. These sector are automobiles, white goods and the projects and construction industry. "Prices are under pressure and manufacturers will find it hard to keep them intact".

Further, the analyst said, the depreciated rupee has not had the desired results in the improving the export competitiveness of the industry as the international prices too have been sliding. "The price realisation of all the steel makers will be adversely affected in the second half of the current year". Even SAIL chairman Arvind Pande agrees on this front. "The growth achieved in the first half ended June 2000 would be slowed down in the second quarter mainly because of the fall in prices both in the domestic and international markets".

As the sluggish demand for various steel products is expected to continue on the home front at least till the last quarter beginning next month, there are two options left for the steel manufacturers : One, cut down production to overcome stockpile and match the declining demand; two, cut prices to stay afloat. Hoping that there would be some correction by Nov-Dec this year, a section of steel makers do not rule out either production or price cuts this month, while others try to put up a brave face against the rising stockpile.

"Steel rerollers are already under pressure to sell their products at lower than earlier prices to prevent themselves from rising stockpile", the aforementioned executive said. "Flat steel makers too are beginning to feel the heat". Lastly, till end-Sept the steel makers are expected to go slow on production front under various pretexts, including "annual shut down of plants for few days or weeks in a phased manner". This will help them avoid cut in both production and product costs till an upswing can be experienced by year end".