Rupee Fall Offsets Iron Ore Price Dip

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Researched by Industrial Info Resources India (Delhi, India)--Although the price of Iron ore has seen a significant downturn globally in the recent times, Indian Steel Companies are still unable to reap the benefit of the fall as the country's currency continued its decline against the US Dollar. Iron ore prices in international market have fallen by over 7% from $150 per ton to $139 per ton, while the price of coking coal, the major fuel for the steel industry, also got cheaper by around 21% from $285 per ton to $225 per ton.

Integrated steel makers like Tata Steel Limited (BSE: 500470) (Mumbai), JSW Steel Limited (BSE: 500228) (Mumbai) and Steel Authority of India Limited (SAIL) (BSE: 500113) (New Delhi) were due to benefit directly from the falling prices of raw material, but the depreciation of rupee then started playing spoilsport. Further, non-integrated steel majors who are dependent solely on the imported raw material will have a bigger hole in their bottom-line figures.

Over the last few months Indian rupee has depreciated by over 8% putting a dent of $810 Million on account of mark-to-market (MTM) provisions for currency fluctuation. It is primarily hitting the industrial sector putting higher pressure on the costs of items like oil, imported coal, metals, minerals and imported industrial intermediate products.

On the other hand, rupee's fall has escalated worries about India's current account deficit, which recorded a high of over 4.8% of gross domestic product during the financial year ended March 2013. This has complicated of the task of restoring the country's economic health. Notwithstanding the slowdown, the steel sector has showed an improvement due to increment in production caused by fall in prices of raw materials in the international market.

Demand of steel in the domestic market is unlikely to be in sync with the sudden jump in production. Under this scenario the steel producers in India are likely to see an increase in their overseas sales. Indian steel companies may enhance their exports to Africa, as the region is emerging as a major demand centre for steel and other iron based products.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.