Amid higher costs, steel firms may raise prices in the coming months

CRISIL Research and industry experts say a recovery in domestic demand since the second half of September can also prompt the hikes

Steel companies raised prices in October after three months, but there could be more hikes in store over the next few months on the back of cost inflation, said a research firm.

In the last five months, prices of coking coal (larger part of raw material cost structure for Indian mills) have more than tripled to $390 per tonne as of October first week, according to CRISIL Research.

Industry sources added that prices of thermal coal FOB Australia was up by more than 150 per cent since April. In addition, ferroalloy, natural gas, zinc prices also jumped, adding to the overall cost inflation for companies.

Indian steel prices are still at a discount to international prices. With the increased cost and a recovery in domestic demand since the second half of September, more price hikes are likely.  

Cost pressure

Prices of hot rolled coil (HRC) – a benchmark for flat steel –moved up by Rs 1,200-1,500 a tonne in the first week of October while long steel prices increased by Rs 3,000 a tonne.

Flat steel is typically used in automobiles and domestic appliances while long steel is primarily for construction and railways.

“The increase in long products was 6-7 per cent and flat products 2 per cent. Steel product prices in April and October have been similar and at the prevailing levels of iron ore, coking coal and other inputs has made it difficult for producers to operate,” Jayant Acharya, director (commercial & marketing), JSW Steel, said.

With the cost pressure, the operating cost of H2FY22 is expected to be more than H1FY22 and that may prompt companies to take a price hike.

“While steel prices have by and large remained stable, the cost inflation is hitting all players across the board. Coal (coking and thermal), natural gas, ferroalloys, zinc etc have moved up sharply and freight rates have gone through the roof. Availability is also getting impacted due to an energy shortfall globally. This will result in steel prices getting corrected to adjust to steep cost pressures,” said Acharya.

Though prices of iron ore – a key raw material for steel – corrected, the cost increase on other fronts has been sharp.

As Ranjan Dhar, chief marketing officer, ArcelorMittal Nippon Steel India (AM/NS India), said, “Iron ore prices in the domestic market have come down by about Rs 1,000 a tonne, but there is a cost impact of Rs 10,000 a tonne for coking coal.”

SteelMint data showed that the average trade reference price for HRC exclusive of GST ex-Mumbai was at Rs 65,400 a tonne in September and that in October was Rs 69,400 a tonne.

A steel producer explained that prices in the trade segment had moved up in anticipation of upcoming price increases due to cost, but mill prices were behind.  

Headroom for hike

"levated global steel prices will provide enough headroom for domestic steel mills to cover for the cost inflation (especially given the fact that domestic steel prices are still 13-15 per cent lower than global landed)," said Isha Chaudhary, director CRISIL Research.

EBITDA margin for the fiscal 2022 is expected to be 400-550 bps higher for large players, she added.

Dhar pointed out that India has been operating at a huge price discount versus international markets all of 2021.

“What we are witnessing now is a huge cost impact due to basic raw materials like coking coal and gas and even ferroalloys and zinc. So the cost of making value-added steel has also gone up,” said Dhar.

Domestic HRC prices are below $900 a tonne, whereas, US is at $2100 plus and Europe at $1250, said Acharya. Higher international prices provided an outlet for steel companies as domestic demand got impacted by the second Covid wave.

However, from the second half of September, there has been some recovery in the domestic market.

“July-September was soft on demand in the domestic market. But H2 is looking better from a demand perspective. It started picking up from the end of September and we are seeing economic activities picking up pace in various segments across the country,” said Acharya.

“Stocks levels are currently at low levels. The Gati Shakti initiative by the government will propel the demand recovery even faster. We, at AMNS, are gearing up to support this demand recovery fully,” added Dhar.

PRICE TRENDS

• Steel companies increase prices in October - HRC by Rs 1,200-1,500 a tonne; long steel by Rs 3,000 a tonne
• Companies facing cost inflation - coking coal prices more than tripled to $390 per tonne as of October first week; thermal coal prices increased more than 150 per cent since April, natural gas up four times
• Companies likely adjust steel prices to cost pressure