Input costs may push Indian steel prices up in Aug

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29 Jun 2008

Indian steel companies are likely to raise prices in August because of high iron ore and coke prices, but may not be able fully pass on their costs due to competition and government efforts to fight double-digit inflation. Analysts and industry officials say a price rise is due as international prices of hot-rolled coils, an intermediate product, are already $200-300 a tonne higher than domestic prices due a rising costs of iron ore, coke and transportation costs In April, steel makers met with the government and agreed to hold prices for two to three months, and then in May they cut prices by 5-10 percent to fight inflation. The government has raised the export duty on iron ore and scrapped export duties on some steel products to help the steelmakers.
However, some firms such as Tata Steel, the world's sixth-largest steel maker, have raised prices for term-contract sales. "With raw material prices increasing and demand for steel still strong, steel companies globally would look to pass on the increased raw material costs," said Rakesh Valecha, senior director for corporate ratings at Fitch Ratings.
Without capacity additions in the near term, a demand-supply gap in India will remain even if economic growth slows, Tata Steel managing director B. Muthuraman said on Thursday.
Domestic steel demand was rising and imports were set to rise to 8-9 million tonnes this year from 6 million tonnes last year, he said.
"I believe this should propel prices to reasonable rates, probably close to international prices. But of course, there is a need for the government of India to curb inflation and I believe that we need to help that process," he said.
Indian spot iron ore prices are already higher than in China, and global ore prices for term deals are set to rise after China's Baosteel agreed to increases of as much as 96.5 percent to Australian miner Rio Tinto.
India's two biggest steel firms, state-run Steel Authority of India and Tata Steel, own mines, giving them some protection against global iron ore price rises. But the two firms, which control about one-third of the domestic market, cannot avoid the trebling to more than $300 a tonne of coke prices.
Smaller firms such as JSW Steel, Essar Steel, Jindal Steel & Power, Ispat Industries are expected to wait till state-run miner NMDC Ltd fixes its long-term contract prices, and analysts said they would have absorb some of the higher costs.
Pawan Burde, senior analyst with Angel Broking, said despite surging inflation and rising input costs, smaller firms would only be able to increase prices by as much as SAIL and Tata Steel did, or risk losing market share.

Source: Reuters