Fallout of Russia-Ukraine war: Metal users, producers feel price pinch

Price hikes in the offing, say metal producers; may have to pass on costs, say user industries

Widespread apprehension that the world may fall short of ferrous and non-ferrous metals on account of the Russia-Ukraine war has led to a surge in the prices of these items over the past two weeks.

Between February 23 and March 8, three-month nickel futures on the London Metal Exchange (LME) increased 97 per cent, zinc 16 per cent, aluminium 6.2 per cent, and copper 3.5 per cent. According to CRISIL Research, prices of steel — FOB China have increased 4 per cent in the last two weeks.

Russia is a major producer of metals — it accounts for 6-8 per cent of nickel and 6 per cent of aluminium production, and has a 13 per cent share in world steel trade. Ukraine, too, exports about 15 million tonnes (MT) of steel.

In the domestic market, prices of aluminium, copper and zinc have moved in tandem with the LME, while steel prices are also reflecting the global trend. According to officials in user industries, metal companies have already indicated that they could hike prices.

“Our vendors — suppliers of steel, aluminium and copper — have sounded us off and asked us to be prepared for a hike after the ongoing contract comes to an end this month,” said an official at a Pune-based auto component manufacturer, which counts Tata Motors among other automakers as its key customer.

The sector primarily has six-month contracts, especially for steel. A top official at an automaker said the impact of the war will start playing out if the Russian offensive continues. “In the medium term, as supplies get disrupted, input costs will go up. In the long term, it can cripple production,” said the official.

Hetal Gandhi, director, CRISIL Research, pointed out that raw material cost accounts for 60-70 per cent of revenue for the automobile sector, and of the total raw material cost, almost a quarter is dependent on metals.

Consumer durables manufacturers, too, are gearing up for a price hike. Aluminium, steel, and copper prices have shot up especially in the last 7-10 days. which is a deadly concoction and we’ve noticed that prices are sticking to higher levels, said Rohit Mathur, president, electric fans, water heaters and pumps, Usha International.

Mathur said the company was watching the situation and may have to pass on price increases to the tune of 10-15 per cent in April with the fluctuation in the dollar and higher freight costs, apart from input cost.

Eric Braganza, president, the Consumer Electronics and Appliances Manufacturers Association (CEAMA), too, said there could be a price increase towards the end of April, but it was difficult to predict by how much. “Everything is in a state of flux because even if raw material is contracted at current prices, freight prices go up due to oil prices,” he said.

It’s not just end-users that are facing cost pressure. Input costs have gone up for steelmakers as well. Iron ore has risen, coking coal is currently at an all-time high with hard coking coal FOB Australia at $560 a tonne.

“Prices have gone up from the beginning of March by 5-7 per cent whereas the cost of production on account of coking coal, gas, zinc, iron ore and other raw materials has increased by 25 per cent,” said Ranjan Dhar, chief marketing officer, ArcelorMittal Nippon Steel India (AM/NS India).

“So, we want to wait and watch and see how things pan out in the short term. Right now, the situation is quite volatile and a lot of mills across the globe will not be viable to produce fully at these cost challenges. We will have to see how the situation emerges,” Dhar added.

Runaway nickel prices are also adding to input cost for stainless steel producers. “There are certain nickel-containing stainless steel whose pricing will be affected. The big question is how much the industry will be able to pass on to the market,” said K K Pahuja, president of the Indian Stainless Steel Development Association (ISSDA).

However, for producers of metals the saving grace is that demand is good. “Both production and demand are good this year,” said Pahuja.

An aluminium producer also pointed out that it was facing input cost increase as coal prices were up.

Jayanta Roy, senior vice-president of ICRA, said: “The sustainability of the metals rally in the medium term is suspect, given the prospect of inflationary pressures on the back of high energy prices, prompting central banks to increase interest rates, in turn leading to a cooling off of demand.”