Impact of Volatile Steel Prices on Indian SMEs

The past two years of the pandemic have turned out to be quite tough on the SMEs in India. With the constant drops in domestic demand with an already negligible export rate, a number of these enterprises stand at the cusp of losing their existence. 

A steep increase in the raw material price in the past few months poses a big threat to the existence of many SMEs. This also happens in the backdrop of low demands in the open market because of the situation created by the pandemic.

India is the second largest steel producing country. The steel industry of India largely consists of SMEs that aren’t able to cope with these conditions. They have been demanding the government to take steps for stabilization of raw material prices, especially steel prices, for SMEs. Let us try to understand the depth of the problem.

The above table denotes the changing trends of steel prices online in India. Compared to July 2020, in June 2021 the steel prices have doubled. Steel in various forms ranging from Hot-rolled Coils (HRC) to Round bars, all see a drastic hike in their prices.

This hike puts an extraordinary burden on SMEs as they see a drop in demand in the domestic base while not having any capability or potential to export their products. This is because SMEs mostly make long steel, sponge and pig iron, which doesn’t have a large global market. 

Factors Responsible for Price Surge

1. High Demand: An increasing demand in the global market for steel while the supply remained the same caused a demand-supply gap. This gap led to higher steel prices online and otherwise for the existing supply, making it easily attainable by the giants while putting economic pressure on SMEs. 
2. Cost Inflation: Many large steel producers have blamed the rising prices on cost inflation. The coking coal prices that are required in steel production is at an all time high. Along With this, the iron ore prices have remained the same, thus, increasing the steel prices. 

Overall Impact on the Industry

A CRISIL report projects the overall revenue of the Indian steel industry to rise by 50-60% in the current fiscal year. Although this rise will not be equally divided amongst the large-scale industries and MSMEs. While the giants will use the advantage of rising demands in the global market to increase their profits, MSMEs will have to bear the brunt of lowering demands in the domestic market and the rising steel prices online.

What can SMEs do?

This problem can only be mitigated at two levels: 1) Demanding governmental intervention; something that can take indefinitely long, or 2) Choosing the right partner for your raw material procurement.

Since government intervention has already been demanded by the SMEs, we can look at the latter part. There are many e-commerce platforms that are providing raw material, including steel through their online portals. The steel prices online vary to a large extent, this is why it is crucial to choose the right place. 

The right place for SMEs would be the one that’s a one-stop solution for all their needs. A one-stop solution will provide SMEs with multiple good quality products in large amounts for reasonable prices. And, at the same time giving saving offers to those who are in the business for a long ride. OfBusiness is one of the places that fits this criterion and is largely chosen by SMEs for their business needs. It’s a single platform to fulfill all your business needs.