Steel firms may raise prices 30%

Steelmakers are likely to raise prices by 30% as they look to maintain margins given the greater-than-expected rise in raw material costs.

RN Rawat, general manager-material management, Steel Authority of India Ltd (SAIL), the country’s largest producer of the metal, said he expects a further rise in raw material costs in the coming months. “New coking coal contracts are being signed at $200 per tonne as compared with $105 per tonne last year. The cost of iron ore is also going up. In such a scenario, I think we will have to increase prices of steel products by 25-30%,” he said.

B Muthuraman, vice-chairman, Tata Steel, told Reuters he expected iron prices to rise 35% this year, which will put pressure on profit margins. “I don’t know where it’s (iron ore prices) are going to settle down, but it does look 25-35% higher. Steel prices may not go up by that much. This means steel companies will come into margin pressure,” he said.

Amitabh Panda, chief of procurement at Tata Steel, said rising raw material costs are of “huge concern for bottomlines” for steel firms. He added that the 8-9% growth in steel consumption would help ease pressure on manufacturers’ margins.

S K Roongta, CMD, SAIL, had recently said that steel prices could breach the $700-mark if raw material prices remain high. Steel prices are currently at $600-650 per tonne.

Pawan Burde, vice president (research), PINC Research said steel firms will have to increases prices by $60-70 per tonne to offset the cost push.

However, the price increase will be gradual. “Steelmakers won’t be allowed to increased prices by 30% in one go. They will do it gradually… This increase, however, is inevitable,” said an analyst who wished not to be named.

Chandrani De, analyst, Ambit Capital, said, the key question is the extent to which steel producers can pass on the higher-than-expected coking coal price rise to consumers.

“In the short-term, stocks in the steel industry may be under pressure, as markets will be concerned about the direct impact of the coking coal price rise on profitability, as well the possibility of even higher iron ore price rises. These concerns are likely to continue until steelmakers demonstrate their pricing power by hiking steel prices. We however believe that steel companies will raise prices enough to protect their margins,” De wrote in a March 9 note.

Prasad Baji, senior vice-president, Edelweiss Securities Ltd, feels firms won’t have a problem passing it on by hiking prices. “More or less, the prices (coking coal) are along the expected lines and I believe that the steelmakers should be able to pass on this cost to consumers,” he said.

Spot iron ore prices are at around $115 per tonne now and the industry expects long-term prices for the next fiscal to be set at around $100 per tonne, up 25-30% from the current year.