Steel firms gear up for another hike in prices

Big companies like Essar Steel, JSPL, JSW Steel and SAIL to pass on higher cost of production to customers

Domestic steel producers, including Essar Steel, Jindal Steel & Power, Sajjan Jindal-led JSW Steel and Steel Authority of India (SAIL), are gearing up for a second consecutive price hike in October, on the back of increased cost of coking coal and other raw material.

Companies had raised steel product prices by Rs 2,500 per tonne from September 1, taking hot-rolled steel to Rs 39,000 per tonne and cold-rolled steel to Rs 42,000 per tonne.

“Our (domestic steel industry) current product pricing scenario is unable to support costs and hence a price hike is inevitable in October. At prevailing products prices, steel companies will continue to post negative results,” said Ravi Uppal, chief executive officer at Jindal Steel & Power. The company is still to decide on a quantum of hike and is expected to do so by early next week.

Today’s average steel price stands Rs 28,000 per tonne, which is far lower than the average price in December 2014 at Rs 39,000 per tonne. This kind of pricing picture calls for another hike, said industry officials.

“Coking prices have risen significantly since the last couple of months and so we will have to pass on the cost of production hike to customers,” said Jayant Acharya, director-commercial, JSW Steel. The company is to take a call on the quantum of hike by end of this week.

Coking coal prices have doubled since beginning of August and are expected to remain volatile going ahead, hurting steel companies’ operating costs. “We will be raising product prices in line with market and with the kind of cost escalations we cannot afford to under-price our products anymore,” said an Essar Steel source close to the development.

State-owned SAIL is expected to raise prices of hot-rolled coils by Rs 1,700 per tonne, while HR-plate price would be hiked by Rs 1,120 per tonne, said a source close to the development. Calls made to Tata Steel went unanswered.

While domestic steel industry remains engaged in mulling the quantum of October price hike, demand for the commodity is expected to catch pace in coming months, thanks to a rise in construction activity.

“Second half of this year has seen demand rising for steel as government projects are likely to take-off,” said Sanak Mishra, secretary general at Indian Steel Association (ISA).

Domestic demand for steel is expected to grow 5.3 per cent in the current fiscal to 85.8 million tonne as consumption from construction and capital goods is seen higher, supported by higher infrastructure spending, ISA has said in its recent report.

In addition, a pick-up in rural income due to good monsoon and government initiatives is expected to help in creating sustainable demand in the region. Railways and intermediate sectors are also expected to witness growth. “Government initiatives by way of increments to its employees and public sector staff is likely to boost automotive and consumer durables demand in the current financial year,” said ISA  in its short-term domestic steel demand outlook.

The association sees consistent rise in domestic demand for the next eight quarters, taking 2017-18 demand to 90.6 million tonne, achieving a growth of 5.6 per cent from previous year.