>Indian Steel: Steel majors raise prices post budget 2010 (UBS)

■ SAIL has increased prices by Rs600; JSW Steel by 2%
SAIL has increased steel prices by Rs600/t post the 2% hike in excise duty announced in the government’s annual budget. JSW Steel raised its prices by 2%. Our channel check indicates similar price hikes by Tata Steel. Average prices in India before the budget were Rs34,800 for HRC and Rs32,500 for wire rods (including 8% excise duty and 4% VAT).

■ Other Asian companies such as JFE and Nippon Steel raised prices
JFE and Nippon Steel raised their export steel prices by US$200/t (previously around US$550-600 versus the domestic price of around US$800).We believe this is largely in anticipation of higher raw material contract prices and could be positive in the near term as it highlights steelmakers’ ability to pass on raw material price hikes. However, we remain concerned global overcapacity (especially in China) and tightening measures in China could lead to softening of steel demand and prices in H210.

■ Key near term event—raw material negotiations
BHP will be in Tokyo next week to negotiate coking coal contracts with Japanese steel makers. We believe it could press for quarterly price contracts, as an alternative to annual benchmark prices. Spot coking coal is more than US$200/t versus the contract price of US$129/t last year. Iron ore spot (CIF China) is around US$138/t versus the contract price of US$61/t last year.

■ We remain cautious on the Indian steel sector
We believe it will be difficult for the sector to outperform in a rising cost scenario. We would prefer mining names over steel names. However, we think Indian steel companies could outperform Asian peers due to higher iron ore integration (most Indian companies import the bulk of their coking coal requirements).

To read the full report: INDIAN STEEL