Squeeze On Price, 10 Per Cent Special Margin Cause Steel Stocks To Suffer

New Delhi, Sept 22: | Updated: Sep 23 2003, 05:30am hrs
Steel stocks were battered on Monday on reports that the government is applying pressure on steel companies to cut prices in the domestic market. Imposition of a special margin of 10 per cent on steel majors like Tata Steel and Steel Authority by The Stock Exchange, Mumbai (BSE), added to the selling pressure leading to a 4-7 per cent decline in almost all steel stocks.

Market sources also attributed Mondays losses to the fact that derivative contracts are scheduled to be settled later this week.

Stocks with smaller market capitalisation were the largest losers on the bourses. Uttam Galvanised Steel crashed by 7.94 per cent to close at Rs 11.6 while Ispat Industries plunged 7.05 per cent to Rs 10.55 from their previous days closing price.

Steel stocks have been on a rise, thanks to the sustained rise in the price of steel in the domestic markets during the fiscal. Higher demand from the export markets, especially China, has also helped the steel majors. Rise in exports reduced supply in the domestic markets, thus aiding the rise in domestic steel prices. This has boosted the bottomlines of steel companies and many of them have been able to come back in the black during the current fiscal.

In case the Government succeeds in pressurising the steel majors to reduce prices, the margins of these companies would be hit. This had triggered todays correction in steel stocks, according to a market analyst.

BSE has also imposed special margin on the basis of member-wise gross purchase or sale position from Monday. Tata steel, Steel Authority of India and Essar Steel are attracting 10 per cent special margin while special margin on Electrosteel Castings, Panchmahal Steel and Vallabh Steel have been fixed at 25 per cent by the exchange.

Steel Authority of India plummeted 4.78 per cent since its last weeks closing price to end the day at Rs 32.85. Tata-group major Tata Steel also dropped 4.06 per cent during the day to close at Rs 246. The losses would have been higher but for the brief recovery towards the end of the days trading.

Jindal Group stocks, Jindal Steel Jindal Vijayanagar Steel and Jindal Iron and Steel also came under heavy selling pressure declining 4-6 per cent since their close on Friday. These stocks closed at Rs 713.4, Rs 13.15 and Rs 145.85, respectively, on Monday.

Other major losers during the day included Essar Steel (declining 3.93 per cent to close at Rs 22), National Steel (3.95 per cent, Rs 10.2), Bhushan Steel (3.6 per cent, Rs 49.5) and Mukand Ltd (3.56 per cent, Rs 23).