Steel prices are likely to fall in 2009 due to declining consumption from user industries such as automobile and construction, says a report by Ernst & Young.
"The near-term outlook for the (steel) industry is challenging as the growth in key end-user industries such as construction, automobiles and manufacturing has taken a backseat. Prices are expected to decline in 2009 as consumption levels are projected to continue plummeting," the report said.
After touching a peak of $1,150-1,250 a tonne last year, steel prices fell steeply to $550 per tonne due to slump in steel offtake due to global industrial downturn.
The downturn has also led to a decline in the prices of raw materials such as iron ore and coking coal, albeit at a lower rate than the dip in steel prices, the report added.
However, it said the miners would not agree to sign raw material contracts for iron ore and coking coal at lower rates, contrary to the expectation of steel producers, who are looking to ease the input cost pressure.
"The consolidated nature of the raw material industry ensures that generally it is the input suppliers who have better bargaining power than the steel manufacturers, thereby impacting operating margins (of the steel firms)," the report added.