Here’s Why Steel Prices Have Surged In February And March

Steel prices have risen by nearly 7 percent in the last 30 days after the world's largest iron ore producer shut a key mine in Brazil and demand from the infrastructure sector increased.

Steel firms hiked prices of the commodity by around 4.5 percent in February and 2.5 percent in March, three industry executives in the know told BloombergQuint requesting anonymity as they aren't authorised to speak to the media. That takes the cumulative price hike to Rs 2,750 per tonne.

A dam at Vale SA's mine in Feijao in Brazil burst on Jan. 25, releasing mining waste that killed over 169 people and contaminated rivers. The company has since been ordered to shut other mines and has evacuated people in the vicinity of its other dams. The actions are expected to impact the production of about 64 million tonnes of iron ore, Bloomberg reported.

Saurabh Shah, a steel dealer in Mumbai, said that steel prices have risen since mid-February, attributing it to the pick-up in demand from the infrastructure sector. He didn't rule out further price hikes ahead of the general election.

Morgan Stanley in a note in March pointed to accelerating demand in the steel sector for February. It said that demand for February grew by 7 percent over the previous year compared with 4 percent growth in January on the back of capex recovery and pickup in consumption demand.

Moody's, while upgrading Tata Steel Ltd.'s rating last month, said that it expects pricing discipline to continue in the steel sector amid consolidation and higher utilisation to aid pricing.

Hot rolled coil steel prices may have recovered since January, Amit Dixit, research analyst and assistant vice president (institutional equities) at Edelweiss Securities, said that he doesn't see a sustainable increase in prices amid muted demand from automobile industry and as existing stocks get consumed.

He expects prices to remain range-bound due to rise in prices of Chinese exports, receding imports and existing discount to steel prices compared with landed prices of imports.