Despite growing demand from the auto industry, which recently reported a significant surge in sales, steel players are yet to cash in on this demand as pressure on international prices and overcapacity in China have prompted domestic companies to pare flat product prices.

Flat steel prices saw a fall of Rs 1,000 per tonne in the last two months. The country?s largest steel producer, Steel Authority of India Ltd (SAIL), on Tuesday reduced its flat product prices again by about Rs 500 per tonne. However others have not decided on any price cut yet.

?Taking into consideration the market situation, we have reduced the flat product prices,? a SAIL spokesperson said. Growing at the rate of 20-25% a year, India?s production of automobiles is set to increase over the coming years. Of the total 4.1 million tonne (mt) cold rolled (CR) coils produced in India, 2 mt is consumed by India?s auto industry.

Steel players whom FE spoke to, said demand for flat steel is increasing as the top line of the automobile industry is growing. Moreover, volume growth is also expected in the new contracts that are set for renewal by the auto industry.

However, prices are expected to remain at the current level.

Though auto companies expects steel contracts to be signed at higher prices for the next six months, steel manufacturers say prices are expected to remain at current levels due to pressure on international prices.

MVS Seshagiri Rao, joint MD and group CFO of JSW Steel Ltd, said, ?Of the total 8 lakh tonne CR coils we manufacture, we supply 2 lakh tonne to the auto industry, which is about 15-20%. The flat steel demand in India is quite strong and the prices are based on negotiations with customers.?

However, declining to give specifics, Seshagiri Rao added, ?Our prices for October-December 2009 are fixed. For the January to December quarter in 2010, we will decide prices based on the international rates.?

According to a steel manufacturer, ?Import prices have become the benchmark for domestic prices. Cheaper imports are keeping the domestic prices low, impacting the margins of steel manufacturers.?

With Chinese export prices weakening due to overproduction in China and traders destocking ? they had built up large inventories due to the stimulus programmes ? the premiums had widened significantly in September-October 2009.

Tata Steel recently said its new automotive contracts for the second half of FY10 have been signed at higher prices compared to the first half and compared to the same period last year due to very low steel prices earlier.

Similarly, an Essar Steel spokes person said, ?The international prices of certain value-added grades are firming up and Essar Steel is looking at rolling over prices of certain grades. However, the prices are not falling further,? he said.

Price pangs

* Flat steel prices saw a fall of Rs 1,000 per tonne in the last two months

* SAIL on Tuesday reduced flat prices again by about Rs 500 per tonne

* Rates may remain at current levels due to pressure on international prices