Apart from the recent increases in the prices of iron ore, that of the other key raw material, coal, has also moved steadily up.
The recent price hike announced by steel producers is not the final one for April, as the industry is expecting another Rs 1,000-per tonne increase by the end of this month.
State-owned NMDC, the country’s largest iron ore producer, has intimated its customers about a 34-56 per cent rise in base prices, which would go up later more substantially, factoring in various price adjustments.
“NMDC’s price hike is only provisional. If it comes with a final version with another price increase, then we will have to change our pricing mechanism,” said Anil Sureka, executive director (finance) Ispat Industries. The company last week said it was increasing its base grade steel prices by Rs 2,500 per tonne. Essar Steel and Steel Authority of India also announced increasing their steel prices by Rs 2,500 per tonne.
NMDC’s long-term domestic pricing is based on the Ganesan committee’s recommendations, to calculate domestic prices by considering the percentage change in international prices accepted by Japan for NMDC’s product, and exchange variation on six-monthly forward rates on a yearly basis. The formula is being used since 2006-07.
NMDC would announce its final contract price with Indian producers once its contracts with Japanese steel mills are fixed later this month.
“There is apprehension of another 10 to 15 per cent hike on top of what NMDC has provisionally increased,” said one of the producers, who did not want his or his company’s name to be quoted. “Since the final price by NMDC would come with retrospective effect, I do not know how to fix the product price now.”
NMDC supplies iron ore to most of the Indian primary steel producers that do not have captive mines. “I see a possibility of Indian players increasing prices by Rs 1,000 per tonne by the end of this month,” said Chirag Shah, an analyst with a Mumbai-based brokerage, IDFC-SSKI Securities.
Giriraj Daga, analyst with Mumbai-based brokerage Khandwala Securities, had the same expectation. “In the background of global price increases, NMDC’s further price hike is likely and that will make steel producers increase the price by another Rs 1,000 per tonne,” he said
Steel prices are set to rise further with the recent 55 per cent jump in benchmark international coking prices. In the last two months, steelmakers have raised prices twice by about Rs 600 a tonne to pass higher production costs to end users.
Japanese steel major JFE Steel had signed a coking coal contract at $200 a tonne for supply between April and June, as against $129 a tonne in the same period last year.
With the prospect of demand improving in the coming days, steel companies would be able to pass on the incremental cost to consumers.
Global mining major BHP Billiton has been persuading steel manufacturers to consider contracts of shorter tenure for both coking coal and iron ore. It has given different price options ranging from quarterly to a combination of annual and quarterly contracts.