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After 6% rise in Jan, steel mills see room for more price hikes next month

Prices of other raw materials have also risen significantly in the past six months

Dilip Kumar Jha  |  Mumbai 

Tata Steel

After raising prices by five to six per cent in January, steel mills plan to do so by another Rs 2,500-3,000 a tonne in February, to bridge the gap between domestically produced and landed cost of imported steel, besides other cost pressures. Government-owned NMDC raised prices this month by 19-22 per cent, one of the steepest ever. This followed similar price hikes by in due to the suspension of production at five major mines in the state, by Supreme Court order. NMDC had also raised ore prices in December, by 10-13 per cent. In calendar year 2017, the country's largest miner has raised prices 48 per cent, to match those in international This has prompted steel makers to pass it on to consumers. They raised product prices by up to Rs 2,500 a tonne for January to maintain their profit margin. “Recent increase in price by NMDC and Odisha's are forcing steel companies to pass on the increased cost of production. The increased cost of other like coal, refractory and electrodes are further fuelling this,” said Sajjan Jindal, chairman of the JSW Group, in a twitter post. In another tweet, he said, “With the closure of mines, people are losing jobs and the government is losing royalty. Instead of stopping production in due to non-payment of compensation by lessees, a new solution should be worked out. The government must approach the Supreme Court, considering the shortage of an additional 20 million tonnes will lead to a disastrous situation, wherein small companies will be forced to shut operations.”

Steel makers have raised prices by 5-6% for January, to pass on NMDC’s 22% increase in prices; rise in other continues
Prices of other have also risen significantly in the past six months. After a rally in April 2017, prices of coking plunged towards end-May but then bounced back starting June. It is up 73 per cent to $269 a tonne at present in the Australian benchmark.

Other such as refractory and electrodes have seen similar price spikes in six months. “Imported steel continues to remain costlier by Rs 2,500-3,000 a tonne. There is a room for a steel price increase of this much to pass on the raw material to consumers,” said Jayant Acharya, director (commercial) at JSW Steel. Companies with captive ore availability, and Steel Authority of India (SAIL), also face a margin squeeze due to increase in the prices of other they buy. Hence, they've also raised Adds a senior SAIL official: “Raw material price increase is not the only factor we consider before revision in We also see whether the market can absorb the price increase or not; currently, we see a possibility. The steel cycle has become so short today that we cannot forecast our action plan three weeks in advance. Sometimes, the steel price moves in the opposite direction of raw material prices. Therefore, we will take a price revision call as per the market situation at that point in time.” steel prices, coaking coal, iron ore, raw material, TATA Steel, SAIL PRICE CHART Credit Suisse says there’s a strong possibility of the further spike in global “After some weakness in the first half of 2017, in all regions are up year-on-year. We still think the further upside is possible. remain low compared to 2011 upcycle and, when taking into account inflation, also low relative to 2003-04. We are now nearly two years into the global steel market recovery since the trough of Q4 in 2015 and Q1 in 2016. Yet, fundamentals continue to be strong, steel making margins remain healthy and, if anything in 2018, we should see an acceleration in ex-China fundamentals. Equities, however, continue to discount an imminent downturn in steelmakers’ earnings that we do not think is likely in 2018,” said Michael Shillaker, an analyst with Credit Suisse. The foreign brokerage believes potential global supply constraints in iron ore, metallurgical and electrodes could significantly tighten the market further. “Investor sentiment remains negative and valuations are generally attractive (for raw material companies). The stage is set for the global carbon steel market to improve considerably in 2018, with the outlook for the year ahead relative to investor expectations arguably as positive as at any time since 2003-04,” it adds.

First Published: Thu, January 11 2018. 00:42 IST
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