The steel industry, after a periodic increase in prices over the last year, is bracing for a successive price cuts with rates of hot rolled products likely to soften further by Rs 500-700 next month.

Industry representatives said the next three-four days will be crucial as primary producers are trying their best to prevent a softening of rates, which now appears unavoidable.

The price drop is in line with the international trend and to a large extent can also be attributed to the situation in China.

Exports of value-added items, which were selling at $375-390, have come down to $340-350, while the commercial grade of HR coils is hovering around $310.

Sources said traders in China have resorted to distress selling, with the stocks lying at ports. "They are cashing in on the arbitrage opportunity in China as prices were rising every month," they said.

The severe acute respiratory syndrome in China has also created some panic. "Most of the paperwork was being handled by expats who have been sent back, which again is causing the delay. Also, the national attention is also diverted to thwarting the Sars crisis."

However, the new Chinese quota is expected to be released on May 24, which may arrest the softening. The softening of prices, if it happens, will be the second in the last two months.

Prices at the beginning of this month had softened by 8-10 per cent owing to a backlog in China and the end of old quantitative restrictions.

Some producers are, however, optimistic that with the release of new quota, the fall will be at least arrested, since China has emerged as a net importer of steel. China has been buying at a frantic pace.

In 2002 China's demand for steel was 200 million tonne, which is slated to increase to 220-250 million tonne. Of this, flat products account for 30 per cent.

But, there are more pessimistic producers, who feel prices will drop for another two months as they expect the impasse in China to continue for a couple of months.

Sources said a temporary block in the China market also implies more material for the domestic market, which again will push down prices.

During January-March, HR prices increased by $65-70, while cold rolled prices by $100-120. The increase in prices has largely been on account of a demand pull in China.