Steep drop in steel price; Best time to start SME industry construction

Domestic steel prices are witnessing a tumble in the market scenario. Due to the COVID-led disruptions, this has been the steepest fall in steel prices. It is expected that the current market is to promote the start of the SME industry.

During the pandemic, it was clear that potential businesses were hesitant to build factories or industries at such exorbitant rates that they could not have expected. Furthermore, the estimated project cost was 25% more than the cost anticipated by the companies at the time of submitting the DPR (Detailed Project Report) to the relevant bankers and other nodal authorities. This huge gap in the cost was a loss for the companies.

Subsequently, in response to the rise in global and domestic coal prices, the government had eliminated 5% import charge on metallurgical coke and 2.5% levy on coking coal. As a result, the coal prices affected the industry drastically, majorly because pig iron is the raw material used to make steel. Coal, therefore, serves three purposes in the steelmaking process; as a reducing agent to convert pig iron to coke; as a source of energy to drive the process by breaking up molecular bonds; and as a source of carbon for the end product.

With the widespread effects of the pandemic, the infrastructure industry was affected a lot, as the companies who wanted to begin with the construction could not because there was a hike in the price of steel. The price had reached its double rate of Rs. 83,000/-per MT from Rs. 36,000 per MT. However, with the steel rates stabilizing and reaching a normal market rate of Rs. 63,000, according to the market conditions, industries should start construction projects.
According to the experts, there will be no more price fluctuations in the market and the prospective industry should not wait for the prices to lower but instead start with their projects.

In the midst of covid 19, there was an excess of international demand for steel, and the price of steel was such that it encouraged Indian private steel firms to keep up with the demand and record higher profits.

It is also expected that the crops will yield well and the need for its processed industries will be in demand, so the manufacturing of crop processing industries has the advantage of undertaking the construction project for the same. The favourable agri-based industries can be prioritized especially rice mills, flour mills, oil mills, cotton ginning mills, etc.

A Telangana, Hyderabad-based pre-engineered builder, Kishore Infratech Private Limited provides a comprehensive range of automation engineering services. According to the Director of Kishore Infratech, Mr. Ramraj Khatri, "During the pandemic, the industry as a whole suffered to its peak. In particular, infrastructure sectors like ours encountered severe obstacles due to extraordinary steel price spikes. We used to book orders because by the time it got to the procurement stage, steel costs had risen to the next level. It was difficult for us to persuade the customer to raise the price. Few takers used to understand our pain, and most of them refused to listen to our requests. Later, we included variable pricing methods to maintain a steady project flow. I believe that now is the best moment for prospective industries to begin building rather than wait for additional price reductions."

Hari Krishnan, the Deputy General Manager at Pennar Engineered Building Systems Limited, stated, "Most of the industries have realized the need to start with the construction project as the price for the steel has reduced. But during COVID the major issues were faced by the logistic department whereas manufacturing industries were still working.”

“Since the pandemic, the steel prices were very volatile which had a major impact on the construction industry. As the prices are now reducing, we think this is the best time to resume the construction activity which has been kept on hold or slowed down for almost two years,” says Preetham Venigalla, Director, Paramount Steel.

T. Praveen, Manager, Sales, Volta Green Structures, “As the industry has come out of the phase of COVID, its time for construction activates to double up their speed. In the present scenario of the downward trend in prices, all the sectors need to kickstart their expansions and new projects right away. Looking at the global scenario of increased coal prices and crude prices we can’t expect further reduction in steel. Waiting further, for the reduction of prices will hamper the schedules of the project. The right time for the construction is the best phase which describes the present scenario.”

 

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