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| Edited By: Shubhashish |Source: DNA |Updated: Mar 17, 2018, 03:34 AM IST
Domestic steelmakers have raised prices by Rs 6,100 per tonne since September, citing a surge in demand and an increase in raw material costs.
Tata Steel Ltd, the country’s largest steel maker, on Monday increased prices of long products by Rs 2,500 per tonne from this month.
Public-sector SAIL, JSW Steel, Ispat Industries, and secondary steel maker Uttam Galva have all also announced price increases for April.
“The price hike is driven by cost on account of coke, iron ore and ferrous alloys,” said Jayant Acharya, a director at JSW Steel. “Cost push has become very severe now.”
Steel firms are expected to sign coking coal contracts with miners at around $200 a tonne April onwards, an increase of about 55%, adding about $16 per tonne to the cost of steel. Similarly, iron ore prices have surged more than two-fold in the last 12 months on strong demand from China and a recovery in Europe and the
United States to near $160 a tonne.
However, analysts say the extent of the hike in prices is not justified and that steel firms are using the cost-push excuse as an opportunity to expand margins. “The steelmakers are seeing this as an opportunity to expand their margins and they have been able to do so till now,” said an analyst who did not wish to be quoted. He added that most Indian steelmakers have some or full captive resources and that is working to their advantage.
“Tata Steel, for instance, gets 55% of its coking coal requirements and all its iron ore needs from captive sources. For the company, the impact of the increase in coking coal prices is $22 per tonne and, since its iron ore is captive, per tonne cost is around $18 per tonne. Therefore, the total impact on its margins is Rs 1,400 per tonne,” said the analyst.
A Tata Steel spokesperson justified the price hikes. “There are many other costs that go up…Moreover, this price rise, is to a large extent governed by the market.”
“Similarly, SAIL, with 30% captive coking coal and 100% iron ore
integration, sees an impact of Rs 2250 per tonne on its steel costs,” the analyst added.
In January, the public sector steelmaker was pushed by the central government to roll back prices by Rs 3,000 per tonne. Its effective price rise stands at Rs 2,500 per tonne.
Another analyst with a domestic research firm said, JSW Steel will be the only loser among the top three players.
He said, “JSW has only 20% iron ore integration and zero captive coking coal, therefore, it has a higher impact on its margins. Its total raw material cost push comes to Rs 6300 per tonne and it needs to raise prices further to get some cushion.”
Ispat Industries has no captive coal and iron ore and its costs have shot up by Rs 5,000 per tonne. Anil Sureka, director (finance), Ispat said, “We need to increase prices further and this will happen over a period of time.”
To make one tonne of steel, a steelmaker needs 0.8 tonne of coking coal and 1.6 tonne of iron ore. At $220 per tonne of coking coal (blended) and $116 per tonne of iron ore (blended) the new contracted prices, per tonne steel making cost for JSW Steel, for example, is around $63 per tonne and at 0.8 per tonne coking coal, the cost is further increased by $65 per tonne.
Flat steel prices were raised by Rs 1500 per tonne in September 2009, by a similar amount in January 2010, by Rs 600 in March due to the excise duty effect and by Rs 2500-3000 per tonne due to the higher coking coal and iron ore prices.
