Steel prices to rise on costlier ore

Rising demand and steep rise in raw material prices may lead to 10-30% hike in prices.

After a downward trend, steel prices are headed for an increase next month, led by a demand push and steep increase in raw material prices.

The raw material negotiations are slated to start in January and indications are that the increase in new contract prices could be between 10 and 30 per cent. Last year, iron ore contract prices were sealed at $80 a tonne (Rs 3,742). Currently, spot iron prices in China are trading at $126 a tonne (Rs 5,893), an increase of 13.5 per cent in the past six months. Coking coal prices have increased to $186 (Rs 8,692) a tonne since May. Last year, contract prices were $129 (Rs 6,033) a tonne.

Jayant Acharya, director (sales & marketing), JSW Steel, said contracts could settle at $140 (Rs 6,548) a tonne, while iron ore prices would also increase.

Coupled with a demand push from the automobile and consumer durable sectors in the domestic market, the steel industry was headed for better times. “Prices have bottomed out. For next month, the inclination is to increase prices,” said Acharya.

That is the sentiment among most producers. “Raw material prices are increasing because there is demand from the user industries,” said Anil Sureka, director (finance), Ispat Industries.

The increase in January would be after five months. This month, some of the producers made price adjustments, while some just rolled over prices.

Sureka pointed out, international steel prices were also on the rise. Over the past fortnight, global prices have increased by around $20 (Rs 935) a tonne. “This is holiday season and once it’s over, activities will start picking up in the international market,” said industry sources. At present, Indian steel prices are around $20 a tonne higher than international prices. Hot-rolled coil, the benchmark price for flat products used by the automobile and consumer durable sectors, is at Rs 31,000 a tonne now. Prices of imported steel scrap also increased from $290 to $340 a tonne in just one month.

However, China, which consumes and produces around 50 per cent of global steel, would ultimately determine the price swing. According to reports, China is expected to increase output by around 10 per cent next year. The steel guzzler has also reduced exports, indicating a higher proportion of production being consumed domestically. Standard Chartered Bank’s commodity outlook said the consumption strength was good for 2010.