Tata Steel's input costs to rise to $7 bn in FY11

Tata Steel Group today said its expenses on key raw materials are likely to go up by $1 billion in the current fiscal to $7 billion due to a rise in input costs.

"We expect a $1 billion rise on raw material expenses to $7 billion this fiscal on account of floods in Australia and increased activity from China," Tata Steel Group Director (Procurement) Kees Gerretse said on the sidelines of an event here.

The costs on inputs would further escalate by around 15% next fiscal over 2010-11 levels, he added, attributing the rise to higher iron ore and coking coal prices, which went past $300 a tonne as a result of a global scarcity in the wake of floods in Australia's Queensland.

Steel prices, as a result, will go up next fiscal as the manufacturers of the alloy are unlikely to absorb the escalated input costs on the back of increased demand for the alloy, he added.

Queensland contributes over 60% of coal exports from Australia, world's largest supplier of coking coal.

As a whole, Tata Steel Group, with a total steel-making capacity of 28.1 million tonne per annum (mtpa), buys around 17 million tonne coking coal and up to 27 million tonne of iron ore a year.

While Tata Steel India has captive iron ore sources, the European operation has none of the key raw materials to feed the plants. Its entire requirement is met through imports. The company had earlier said it would ensure 50% of the key inputs requirement for its European subsidiary by 2015.

Tata Steel has already acquired stake in two coal mines in Mozambique and one in Australia. It has also stakes in an iron ore mine in Ivory Coast and two in Canada.

Gerretse said coal production from Mozambique blocks would peak at 2 mtpa in next two years. Iron ore from the mines in Canada would start coming in from 2014.

The group, he said, was looking at opportunities for acquiring greenfield coal and iron ore assets, but for the time being, its focus would be on the existing mines.

"The price of coking coal will start normalising from August onwards. Iron ore price is also likely to remain stable after the second quarter," he said.