Steel producers consider another price hike as costs rise

Even as the steel ministry has expressed concern and suggested a clamp on steel prices, producers are defiant, especially with NMDC—part of the same ministry—raising input prices.

Producers are, in fact, considering if a new round of price rise can be implemented next month. A severe cost-push and an uptrend in international prices are the triggers. Landed imports were lower than domestic prices till a month earlier; these are at par now.

Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel, said: “NMDC raised iron ore prices by Rs 275 a tonne, effective January 1, though the communication came to us later.”

The hike was interim and effective April 1, and the state-owned miner would be again raising prices. NMDC sources cautioned the increase would be substantial. Since April 2009, iron ore prices had doubled to touch $135 a tonne.

Anil Sureka, director (finance) at Ispat Industries, added that the NMDC price rise for long-term contracts translated to around 11 per cent. “The government should control iron ore prices first. NMDC is a government company,” he said.

Steel producers raised prices from January 1, but the NMDC price had not been factored in. Apart from Tata Steel and Steel Authority of India (SAIL), NMDC is a major supplier to most of the primary producers, including JSW Steel and Ispat Industries. Though there has been no direct communication to the producers to hold prices, the steel ministry has been suggesting that companies refrain from just looking at profits.

Producers had been earlier forced to lower prices, as the government said this was a major contributor to inflation. On the government’s directive, the price line was at $750-800 a tonne from April to July 2008, even when the international price went as high as $1,200 a tonne.

Rao said the government comments on steel prices would have a negative impact. The sector needed to attract a lot of investments, he said. It’s not just iron ore. Coking coal prices have appreciated by about $120 to $170 a tonne over the past year, while scrap export prices, the benchmark for finished steel prices, have gone up by $100 to $285 a tonne. Freight rates have increased significantly, too.

Producers said there was no ground for lowering steel prices, especially when international prices were moving up on higher raw material costs. “The current inflationary trend is led by food prices and steel is a negative contributor,” said a flat steel producer. The current prices were 14 per cent lower than the third quarter prices of last year. “There were two rounds of reduction in October and December,” noted producers.

The decision on prices of flat steel (used in the automobile and consumer durables sectors) for the next month, would be based on international prices, said Rao. Most international companies had increased prices by $50-60 a tonne for February deliveries.

The domestic ruling price of hot rolled coil, the benchmark for flat steel, was at Rs 32,000 a tonne.