Steel prices are expected to move northward on account of short covering and some

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fresh buying may be seen at lower levels. Steel Long plunged around 12 per cent since the beginning of the year. Prices of steel dipped on account of mounting pressure on global commodity prices. Tarang Bhanushali, research analyst at India Infoline, believes that commodity prices have declined as the dollar has strenghtened against major currencies on concerns over credit in the European economy.

From the investment point of view, analysts believe that steel prices will move upwards in the near term because demand from the infrastructure sector is expected to increase in the fourth quarter of financial year 2010. One can invest with a short-term perspective in steel at present levels.

“We remain bullish on the steel sector, considering the strong domestic demand growth over the next two years. We expect average steel prices to be 10 per cent higher year-over-year in financial year 2011, compared with financial year 2010,” Bhanushali added.

“Steel Long prices are expected to improve from these levels on account of short covering after a sharp fall last month and there is possibility of some fresh buying at lower levels. Suppliers are not willing to produce and sell at further lower rates due to higher prices of raw materials and strong overseas market,” said Amar Singh, head of commodities at Angel Broking.

At the National Commodities and Derivatives Exchange (NCDEX), Steel Long futures fell more than 15 per cent in the past six weeks on account of record high production estimates this year as compared to last year.

The March contract recorded weekly high and low of Rs 28,610 and Rs 23,990 per tonne respectively. World steel production is forecasted at 1350 million tonnes in 2010, which would be an all-time high.

According to the data from steel ministry, as per the revised estimates, the country is likely to achieve a steel production capacity of nearly 124 million tonnes by the year 2011-12. The steel sector is expected to generate additional employment of around 4 million by 2020 for production of around 295 million tonnes of crude steel by 2019-2020.

Total steel consumption rose to 40.98 million tonnes in April to December 2009, up 5 per cent from 38.05 million tonnes in the same period the year before, the data showed.

Nearly 98 per cent of mined iron ore is used to make steel.On the iron ore negotiation front, Chinese mills are trying to settle the negotiations with a reasonable price hike. Iron ore negotiations with the Brazilian government involves iron ore export tax. This move is interpreted as an attempt to raise the spot prices.

On the NCDEX platform, prices have shown some signs of confidence, wherein physical suppliers were reluctant to supply material at the prevailing prices. Higher scrap prices and cost of conversion is not making it feasible for the manufacturers to run their plants and sell the finished product at prevailing prices.

According to Anand James, chief analyst at Geojit Comtrade, “Technically NCDEX March futures would take a longer period for rallies to trigger; technical structure favours recent downsides to take a turn near Rs 23,600/23,200 region for a mild rise towards Rs 25,500-26,000.” On Thursday, NCDEX steel at Mumbai was traded at Rs 23,200 per tonne.

Per capita finished steel consumption in the country was estimated at around 44 kg in 2008-09, which is expected to reach 54 kg by 2011-12. This presents a remarkable growth opportunity over the next few years.