Freight hike by Railways likely to push up steel prices from October 1

Major steel producers are expected to increase factory prices of both long and flat products by an average Rs 1,000 per tonne from October 1 following the railway freight hike announced on Friday, an increase in key raw material costs and hopes of better demand during the ensuing festive season.

Distributors and dealers stressed that steel companies typically increase prices from October as construction activity revives following the end of monsoon and automobile demand also improves due to the beginning of the festive season.

D Datta of Indu Corporation, the distributor of a leading steel brand in Mumbai, told dna that major producers including the Steel Authority of India, Tata Steel, JSW Steel, Jindal Steel and Power and Rashtriya Ispat Nigam are likely to hike the prices of TMT bars, which are used in construction, by Rs 1,000-1,500 per tonne.

“All new constructions start from Dussehra and Diwali, so clearly, there will be an uptick in demand from the next month,” he said.

TMT bars of various sizes, like 8 mm, 10 mm and 12 mm, are currently available in the market in a range of Rs 45,000-48,000 per tonne.

Kalpesh Choudhary, another steel distributor from Mumbai, said steel companies, which have taken a hike of Rs 1,500-2,000 over the past month, are likely to increase prices by a further Rs 500-1,000 per tonne in October following the proposed 15% hike in railway freight and relative supply crunch in the domestic market.

Most steel manufacturers have increased their exports this month to make the most of the sharp depreciation in the rupee, which seems to have created a shortage of steel products in domestic market.

Sharad Mahindra of JSW Steel conceded that his company was considering a price hike for both long and flat products. However, formal decision will only be taken on September 30, he said.

According to sources, the price hike could be 2% in the case of long products and 9-11% in the case of flat products, which are mainly used by automobile manufacturers.

Steel makers usually sign quarterly and half-yearly contracts with automobile manufacturers.

Mahindra stressed that the rise in raw material prices was also a reason for considering a price hike.

Prices of coking coal have increased by $5-10 a tonne in the international market, said Goutam Chakraborty, analyst at Emkay Global. Coking coal contracts for the current quarter were signed at around $145, he said.

Mahindra, too, agreed that coking coal contracts for the October-December quarter were signed with a 5% hike. Also, the iron ore supply situation continues to remain tight in the domestic market as mines in Karnataka are yet to start full-fledged operations.

The companies are expected to announce the price hike in the next few days.

However, most dealers dna spoke to said that while a price hike was imminent, its absorption was questionable as demand has been strikingly poor in the last few months.

“Traders are saying steel demand, which generally revives from September, especially from the construction sector, remained the worst during the month. If the current demand situation prevails and the rupee continues to appreciate, it would be very difficult for steel companies to pass on the hike,” said Chakraborty.

Chaudhary agreed that price absorption was difficult given the current gloom in the economy.

Also, automobile companies, which have been struggling with dwindling sales, will be loath to accept any price hike in their quarterly and six-monthly contracts, though steel makers will push for a hike in the hope of higher car sales during the festive season.