Steel prices expected to fall in the coming months

Steel prices are expected to fall in the coming months. Analysts warn that this could be a cause of worry for newly merged companies like Arcelor-Mittal and Tata-Corus, reports CNBC-TV18.

The steel industry has seen two of its biggest takeovers this year, courtesy Mittal Steel and Tata Steel. And the industry is heading further towards consolidation. But are these big-ticket buyouts going to payoff? Analysts say steel prices are showing signs of weakening.

"The Economist Intelligence Unit has predicted a fall of about 13 per cent or so in prices over the next few years. But I think Tata has taken a much longer term view of the Corus acquisition," feels Suvojoy Sengupta ,vice president, Booz Allen Hamilton.

"There has been a little bit of softening in the market recently, particularly in North America and to a certain extent in Europe. However, we are not expecting a meltdown in prices in the short or medium term," says Patrick Flockhart, Steel Business Briefing

But then analysts say consolidation is the answer to falling prices, as these companies can now tweak supply. Arcelor Mittal has already announced that it will slow down the production of flat steel in Europe.

"I think what we're seeing is that with the gathering pace of consolidation in the industry, particularly with Arcelor-Mittal deal and with other groups like this, the amplitude of the steel cycle is likely to change. Steel prices, if the consolidation trends continue, are likely to become less violent." says Jitesh Gadhia managing director, ABN Amro.

"This is just a minor statement from companies like Arcelor Mittal to say they know what is going on, and they are going to control the market if they have to," feels Patrick Flockhart, Steel Business Briefing.

Not quite a crisis yet, but many of the pairs are now bracing themselves somewhat towards more difficult times ahead.