MSMEs to be biggest beneficiaries of trading in steel futures, says industry body; inks MoU with BSE

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Published: August 29, 2019 6:51:15 PM

The steel sector, which majorly comprises of MSMEs, is looking for more transparency, a level playing field and investment boost as industry body Steel Users Federation of India on Thursday inked an MoU with the BSE to enable trade in steel futures.

The decline in steel prices has been due to the fall in demand particularly following the slowdown in the automobile sector. Photographer: Krisztian Bocsi/Bloomberg

Amid economic slowdown triggering fall in steel demand from auto and infrastructure sectors, the steel sector, which majorly comprises of MSMEs, is looking for more transparency, a level playing field and investment boost. Industry body Steel Users Federation of India (SUFI) on Thursday inked a memorandum of understanding with the Bombay Stock Exchange (BSE) to enable trade in steel futures. “The sector is dominated by MSMEs. Trading in steel futures will stabilise and bring transparency in the market and boost employment benefiting everyone including MSMEs. There are many fluctuations that happen in the steel market as it happens in any other market. How do you cover your risk from such fluctuations?” SUFI’s president Nikunj Turakhia told Financial Express Online.

There are no tools available because of a lot of technical reasons such as standardisation of the product was not there. Hence it made sense to introduce trade in futures whereby Indian user or trader can cover their risk whether selling or buying steel, according to Turakia. The decline in steel prices has been due to the fall in demand particularly following the slowdown in the automobile sector. Prices of the hot-rolled coil and cold rolled coil declined from Rs 46,500 per tonne and Rs 51,350 per tonne respectively in September 2018 to Rs 37,250 per tonne and Rs 42,250 per tonne in July 2019 as per MEPS International and Steelmint.

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“Slowdown was triggered by NBFC crisis leading to liquidity crunch due to which demand is very subdued. SMEs are affected more vigorously because they don’t have deep pockets like large companies. If MSMEs in steel are not supported then there will be further problems of jobs,” said Turakhia.

According to credit rating agency Moody’s outlook for the steel sector, rise in the US tariffs on steel imports will have a limited direct impact on Asian steel companies as the sale have been modest even as the trade tension between the US and China has also allegedly contributed to the price slump. “It is a misconception that because of a trade war or tariff imposed on India’s steel imports will affect Indian steel mill. India’s steel exports to the US is negligible. India imports about 5.5 per cent of India’s gross production which around 130 million tonnes. Also, imports have gone down,” said Turakhia adding that the percentage of China’s share in imports is also hardly 18-20 per cent that means China’s share in India’s total gross production is only 0.9 per cent.

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