A sharp rise in raw material prices, (especially steel) over the last few months has impacted the recovery of manufacturing, construction, and small and medium industries from the COVID-19 pandemic. The MSME industry needs to provide steel at reasonable prices so that export competitiveness of value-added products is maintained
A sharp rise in raw material prices, (especially steel) over the last few months has impacted the recovery of manufacturing, construction, and small and medium industries from the COVID-19 pandemic. The MSME industry needs to provide steel at reasonable prices so that export competitiveness of value-added products is maintained.
Fintech lending platforms have the ability to address the credit gap for small businesses. Most digital lending platforms which used to rely only on equity and debt capital are now also looking at post loan origination sources of capital such as securitization and direct assignment transactions to improve liquidity. The fintech, banks, and NBFCs will play a huge role in powering small businesses in the post-pandemic new world and will help in reviving the economies. These new and innovative lending models will not only strike a right balance between financial stability and growth but also encourage a focus on the credit needs of small businesses in the country and NBFCs and fintechs are considered as better equipped to support this endeavour.
To understand the reasons behind the bullish prices, we can look at some of the factors affecting the price of steel:
Supply And Demand-
As with any commodity, supply and demand is a huge factor that determines steel prices. The higher the demand and the lower the supply, the higher the price. As lockdowns were gradually eased and construction work resumed, steel prices started rising with the rise in demand.
Moreover, the prices of steel are determined not just by current supply and demand, but by forecasted supply and demand. The more information available, the better this can be predicted, and the less volatile prices will be. We must also strive to be aware of inventory in the supply chain in every link from the steel mills to the end-user.
Price is also influenced by the demand of the various industries steel is used for. If the auto industry is strong, for example, steel demand may be higher; the same goes for construction, packaging, and other businesses that rely heavily upon steel.
Costs of Materials-
Scrap metal and iron ore are two of the main materials used to create steel. If there is a limited amount of these resources available, demand exceeds supply, and the cost of materials will jump up.
Iron ore fetching a year-end price of $175 a tonne on the Dalian Commodity Exchange (DCE), is now the world’s best performing major commodity for the second year in a row. Indian Steel Association (ISA) calls for Government Intervention and demands a six-month ban on iron-ore exports, restriction of e-auction sale to steel- and pellet-makers. The Government suspects that the steel-makers might be indulging in the manipulation of production to lift prices, forming a cartel in the cement and steel industry. However, on the contrary, in the steel industry where two major players, namely, SAIL and Vizag Steel are government-owned are also a part of the same trend.
Costs of Shipping-
By the same token, materials used to create steel and finished goods can be costly to ship, a factor that may help determine the price.
Time of Year-
Time of year has its effect on many industries, and those that use steel are no different. Holidays, weather, and seasonal highs and lows affect the output of new products, either raising or lowering demand. Seasonality can impact shipping patterns and transit modes.
All these events have left the MSMEs in jeopardy. Nothing was happening for several months because of the pandemic. The projects were shut down or were on hold. The rise in steel prices is eating into their narrow margins making it more and more difficult for them to sustain. A big issue of MSME credit gap can be solved by fintech lending platforms if they are able to access reliable digital data sets that can assist with credit risk analysis and cash flow-based lending, the regulatory framework supports a low-cost KYC and customer onboarding process and if these platforms themselves are able to tap into a wider set of channels for their own sources of capital.
About the Author:
Mr. Shahrukh Khan, an Alumnus of IIM Kashipur who has completed his PGP in the year 2019 is currently handling the Product & Process – OfCommerce at OfBusiness. While at the campus, he has been a Class Representative and Joint Secretary of Wellness Coordinators. He has also represented IIM Kashipur in multiple TT Tournaments.