Steel prices expected to go up by January on higher raw material costs   

December 9, 2010

There hasn’t been much change in the demand, but increasing raw material costs is putting pressure on steel producers to hike prices

Indian steel makers may go for another price hike as surging raw material--iron ore and coking coal—prices will pressurise steel mills to increase product prices, according to industry experts.

“It looks like prices will go up. Steel prices will move upwards keeping in mind that coking coal prices are being finalised at a higher level for the January-March period and iron ore prices are also moving up. So there will be severe cost pressure on steel mills which will lead to a price hike in January,” Sharad Mahendra, vice president, sales and marketing, JSW Steel told Moneylife.

“Some steel makers are planning to increase steel prices by end-December or early January. Though globally steel prices are at an improved level, it’s purely because of high raw material prices and there is no significant rise in demand. To protect margins and grab the better demand-supply scenario in the fourth quarter, steel companies are preparing to increase prices,” a Mumbai-based analyst said.  

Recently, state-run Steel Authority of India (SAIL) increased prices of long products by Rs300 to Rs37, 500 per tonne, citing good demand for long products as construction activity is likely to pick up in the coming quarter. JSW Steel has raised hot rolled coil prices by 1-1.5%.

According to the analyst, steel prices may increase between Rs1,000 to Rs1,500 per tonne. Mr Mahendra said, “It’s difficult to predict the exact hike as coking coal contract prices are in the last stage of finalisation, but in terms of percentage it could be between 3% and 6% per tonne. It’s just a guess now.”

China is the largest steel producer, so whenever raw material prices go up either they have to shut down units or hike prices, added the analyst.

Now, the Chinese steel industry is coming back on track. Some market experts feel that threat of cheaper Chinese imports into the country may restrain domestic players to go for a large price hike.

However, Mr Mahendra said, “Even though the Chinese steel industry is coming back on track, we do not see it as a threat as the input costs in terms of iron ore and coking coal are very high, so the Chinese mills are not able to export their products at lower prices. Secondly, after capacity shutdowns, which were taken place because of the Chinese government’s energy rationalisation policy, Chinese steel demand is forecast to be very good. So I don’t think China’s increasing steel production will impact the Indian market in the near term.”

Supply of coking coal and iron ore would be another concern for steel makers as supply would be less amid higher demand from China and India.

“China’s average steel production is 50 million tonnes per month. In September, steel production stood between 46 million tonnes and 47 million tonnes, however, the country managed to produce more than 50 million tonnes of steel in October and for this monthly rate of production the requirement of iron ore and coking coal is huge,” said the analyst.

“Weather predictions in Australia, from where majority of coking coal comes, are very bad. It may impact shipments and movement of coking coal from Australia to the rest of country. In India, very few mines are working right now and production of iron ore has come down,” added Mr Mahendra. — Sharad Matade