Steel set to turn costlier by up to Rs 1,000 a tonne

In line with spot market, primary steel producers may also raise prices to pass on higher rail transport costs

The 6.5 per cent rise in railway freight rate has led to an increase of Rs 300 a tonne in the prices of steel products at major spot mandis across the country. Traders are considering an additional increase of Rs 700-1,000 a tonne next week.

Ingot prices at the benchmark Mandi Gobindgarh market in Punjab, India’s largest spot steel market, rose by Rs 300 a tonne to Rs 39,750 a tonne on Saturday from Rs 39,450 a tonne the previous day. The price of melting scrap, the valued raw material for steelmaking that substitutes iron ore in electric-arc furnaces, rose to Rs 31,200 a tonne on Saturday from Rs 30,900 a tonne on Friday.

In line with the spot market, primary steel producers are also considering raising prices in the coming days, to pass the increased transportation costs to consumers. The sector is a considering a price rise of Rs 1,000-1,500 a tonne.

“We are working on the impact. The cost of steel production will definitely go up on the freight rate rise, with an increase in iron ore transportation costs. But a rise in steel prices depends on several other factors, too; the railway freight rate is just one,” said Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel.

Dilip Oommen, chief executive and managing director, Essar Steel India, said, “While increasing railway freight is necessary in the long term interest of the railways, it will have an impact on the transportation costs of raw materials and finished steel products.”

On Friday, Railway Minister Sadananda Gowda had announced a 6.5 per cent increase in rail freight costs and a 14.6 per cent rise in passenger fares.

Anil Suraj, a Gobindgarh-based spot market steel analyst, said, “The implication has already started showing on spot steel prices. The increase of Rs 300 is insufficient, looking at the quantum of the rise in freight rates. The freight rate increase will have many implications on steel mills, as all raw materials, including iron ore, scrap, coking coal and ferro alloys will be impacted. Therefore, steel prices will rise Rs 800-1,000 a tonne.”

R K Sharma, secretary-general of the Federation of Indian Mineral Industries, believes iron ore exports will be unviable. Domestic movement of raw materials and finished products will be costlier at a time when the steel sector is struggling with low demand. Consequently, the proposed increase would be a dampener for the steel sector, said Sharma.

“Railway freight is one of the most significant factors in determining the cost of steel production. With the freight cost rising, all raw materials, including coal and iron ore, will become costlier. As a result, coal, iron ore and steel prices will rise,” said Sanjeev Jain, executive director of global consultancy firm EY.

It is expected agri commodities will become costlier by at least 6.5 per cent in the coming days, owing to increased transportation costs.