Steel firms under pressure as iron ore prices rise

Ore prices have increased 20 per cent in a month.

Iron ore prices have increased 20 per cent over the past month and are trading above $100 a tonne, putting pressure on steel companies.

According to sources, companies that are not protected by long-term iron ore contracts are feeling the pressure, but are unable to pass on the increase to consumers as the market is not conducive.

In fact, some steel companies had cut prices last month to adjust to market forces.

Landed iron ore prices in China have increased from $85 a tonne to $102 a tonne over the past month.

The increase was driven by the fact that China that had not been able to strike a deal for Australian iron ore, said Federation of Indian Mineral Industries (Fimi) sources.

China was expected to import around 600 million tonnes as against 440 million tonnes last year. Industry sources pointed out that India would benefit as around 90 per cent of iron ore fines exports were to China.

Fimi data indicates that exports from India surged in August and September. In August, exports increased 59.09 per cent to 7.1 million tonnes, while in September it surged 87.89 per cent to 6.2 million tonnes. During April-September, total exports were 448.72 million tonnes compared with 397.98 million tonnes in the same period last year.

Steel producers said prices would come under pressure if the surge in iron ore prices continued. Major steel producers apart, most of the companies buy from the spot market and depend on monthly rates.

Last month, prices were reduced by Rs 500-1,500 a tonne and were unlikely to increase till December.

“We have to see whether iron ore prices continue to rise. If we can’t pass the increase to consumers, then steel prices will be under pressure,” said a major producer.

Even though iron ore prices had breached $100 a tonne, they were still well below the peak levels of $200 a tonne of last year.

Fimi sources said, “One cannot tell till how long prices will continue to rise. China is an unpredictable market. Once they strike a deal with Australia, they will stop importing to this extent from India.”