Steel prices up via `surcharge`

The country’s leading steel producers have devised a new strategy to pass on rising raw material costs to the end users without raising prices.

Companies are now levying raw material surcharges while keeping the base price unchanged.

“We have put a raw material surcharge of Rs 5,000 a tonne on hot-rolled coils (HRC) with immediate effect to pass on the 200 per cent increase in coal prices,” said Seshagiri Rao, director (finance), JSW Steel.

Ispat Industries and Essar Steel have imposed a similar surcharge.

“Since there is pressure from rising raw material prices, we have decided to pass on part of that increase by means of a surcharge. As and when raw material prices come down, the surcharge could be reduced or withdrawn,” said industry sources.

Hot-rolled coils are primarily used to make pipes and have many direct industrial and manufacturing applications, including the construction of tanks, railway cars etc.

The government may soon announce a slew of measures including an export ban and an excise duty cut to bring down prices of steel and steel products.

An increase in its prices, therefore, could pressure the margins of these industries and compel them to raise product prices.

The contract price for coking coal has increased from $98 to $300 a tonne with effect from April 1, while the iron ore price has gone up from $52 to $86 a tonne.

Scrap prices have also gone up from $450-475 a tonne to $550-575 a tonne. All these changes together imply a $300-350 increase on every tonne of input cost, especially for those who have no captive resources in coal and iron-ore.

Following a meeting with Steel Secretary R S Pandey last week, steel producers had announced a price-cut of Rs 2,000 a tonne on long products. However, no change was made in HRC prices.

“The input cost of HRC has gone up enormously over the last one year. While the cost-push is in the range of Rs 12,000 to Rs 15,000 a tonne, the price increase is only Rs 7,000 to Rs 7,500 a tonne. The producers are watching the domestic and international situation,” Pandey said after the April 3 meeting.

Steel (including iron) has a weight of 3.64 per cent in the wholesale price index. The Inflation rate for the week ended March 22 touched a 40-month high of 7 per cent.

Steel firms may pay 200% more for coking coal

The prices of coking coal, which accounts for 50% of the raw material cost for steel producers, are expected to go up by over 200% in the current fiscal.

Industry sources said Posco, the world’s fourth largest steelmaker, has just settled contracts at prices 205-210% higher than the previous level of $98 per tonne.

Posco’s contract with Australian miners, effective April 1, would hold good for Indian steel producers importing coking coal primarily from Australia.

C G Patel, director (commercial), Rashtriya Ispat Nigam (RINL), said the last contract price was between $94-98 per tonne, which implies that increase in prices is to the tune of Rs 8,000 per tonne for domestic producers.

"Add to it an increase in ocean freight rate by $25-$35 per tonne, and the increase in cost would be close to Rs 9,000 per tonne," he added.

RINL has no captive mines and imports its entire coking coal requirements from Australia.

Industry sources pointed out that the cost increase being calculated had not factored in the iron ore contracts, which were imminent. "The cost push on account of coking coal is over and above the Rs 6,000 per tonne cost, which has not been recovered by the industry," said sources. Iron ore accounts for 35-40% of the cost of steel production.

Steel firms agree to hold prices

The steel industry, which has been raising prices, appears to be bowing to the government’s pressure to reduce prices. Secondary steel producers today assured the government that they would hold the prices to help contain inflation.

In a meeting with steel secretary R S Pandey, they agreed to increase the import of hot rolled coils (HRC) by 0.6 million tonnes to 1.6 million tonnes to augment domestic availability of the alloy.

Secondary producers – these are mini blast furnace units, sponge iron producers, tinplate and cold rolling units, etc -- usually import 1 million tonne of HRC annually under the advance licence system.

These producers have been told to buy 1.6 million tonnes and export an equal quantity of finished steel-products. “They have committed to improve domestic availability. If the supply improves, prices will fall,” said Pandey.

However, holding prices may not help in controlling inflation, since prices are already high. The prices of TMT bars, for instance, have jumped 40 per cent since January to Rs 42,000 a tonne.

Steel (including iron) has a weight of 3.64 per cent weight in the wholesale price index. Inflation for the week ended March 15 stood at a 13-month high 6.68 per cent.

The steel ministry has called the primary steel producers tomorrow to discuss the issue of rising prices. The producers are likely to convey that they would hold prices until the new raw material contracts come into effect.

“If the government does not bring down raw material prices, we cannot do anything. We will have to pass on the raw material price increases to the consumer,” they said. The new coking coal contracts are likely to be negotiated over the next week and iron ore soon after.

Steel prices raised on the quiet

A day after Minister for Steel, Chemicals and Fertiliser Ram Vilas Paswan told Parliament that steel prices would come down by Rs 500 a tonne on account of the 2 percentage point reduction in Cenvat, makers of flat and long products quietly raised prices by Rs 1,500 to Rs 3,000 a tonne on March 4.

Producers have raised prices by Rs 1,500 to Rs 3,000 a tonne for long products, which are used in the construction industry. For flat products, which go into consumer durables and automobiles, the increase is Rs 2,500 to Rs 3,000 a tonne.

The price increase kicks in with immediate effect and has been implemented by both public and private sector producers.

However, apart from Tata Steel, the world’s sixth largest steel producer, and cold-rolled and galvanised steel maker Uttam Galva Steels, no producer is officially acknowledging the price rise.

“We were waiting for the meeting with the steel minister. Even though the agenda for the meeting was review of projects, we were expecting some directive on prices,” said an industry source.

Paswan, however, told an Assocham meeting in Mumbai yesterday that his ministry would not intervene in pricing decisions owing to the strong criticism it has attracted on this account.

He, however, qualified the statement by saying that non-interference would hold if steel producers did not raise prices at a higher rate than the rise in input costs.

With this increase, the ruling price of TMT bars, a widely-used long product segment, now stands at Rs 43,000 a tonne and that of hot rolled coil (HRC) in flat products around Rs 42,000 a tonne.

Yesterday’s price rise comes a month after steel producers partially rolled back prices in February at Paswan’s behest. Prices had been raised by Rs 600 to Rs 900 a tonne in January and again by an average of Rs 2,500 a tonne in February on account of steep increases in raw material costs such as coking coal and iron ore.

Producers were made to roll back prices by Rs 500 a tonne for TMT bars and rounds and Rs 1,000 a tonne for other products.

Costs between April 2007 and January 2008 had increased by Rs 6,000 to Rs 7,000 per tonne. Government-owned NMDC Ltd, the main domestic supplier of iron ore, raised prices 48 per cent in October and another increase of at least 65 per cent is expected in April, in line with the international iron ore prices.

Most steel producers without captive mines source their iron ore from NMDC.

Spot coking coal prices between April and February have almost doubled and international companies are looking at a 40 to 50 per cent increase in prices from April 2008.

Among the public sector steel producers, Steel Authority of India Ltd is covered 35 per cent for coking coal and 100 per cent for iron ore through captive sources.

Rashtriya Ispat Nigam Ltd (RINL), the other public sector producer, has no captive resources.

Among the major private producers, Tata Steel with Corus has 20 per cent iron ore security and 15 per cent in coal, JSW Steel has 30 per cent iron ore security and imports 100 per cent of its coking coal.

Essar Steel’s only captive raw material source is its 1.4 billion tonne reserves via its acquisition of Minnesota Steel, which is yet to be commercially developed. Ispat Industries has no captive mines.

Cement, steel stocks gain on freight rate cut

Shares of cement, steel, and oil companies were among the gainers on Tuesday backed by positive signals from the Railway Budget. Proposals of large investments for railway modernisation have boosted the market sentiments, said a stock trader.

Sensex touched the day’s high of 17,860 points soon after the Budget proposals were announced, but ended the day lower at 17,806 with a gain of 155 points or 0.88 per cent. Nifty gained 1.33 per cent.

The 14 per cent cut in freight rate for fly ash gave a boost to the cement companies. Major gainers included Grasim Industries (5.06 per cent), ACC (1.53 per cent) and Ambuja Cement (0.65 per cent).

“Fly ash constitutes 25 per cent of the input in cement manufacturing and the freight reduction will definitely give a fillip to the cement industry,” said Mr Hitesh Agrawal, Head of Research, Angel Broking. Other gainers included Ultratech (0.78 per cent), India Cements (4.77 per cent), Binani (3.09 per cent), Madras Cement (2.04 per cent) and Burnpur Cement (4.55 per cent).

According to Mr J. Mehra, CEO, Essar Steel Holdings, the proposed increase in investments on new railway lines and addition of 20,000 new wagons to the railway fleet augurs well for the steel industry.

Shares of Jindal Stainless’, which enjoys 40-45 per cent of the stainless steel market, went up by 7.19 per cent.

Other steel companies scrips also went up: SAIL (2.57 per cent), Jindal Steel (4.16 per cent) and Bhusan Steel (4.04 per cent). However, Tata Steel closed flat. The much-battered public sector oil retailing companies gained after the Railway Minister announced five per cent cut in freight rate for petrol and diesel. Indian Oil gained 4.17 per cent; BPCL gained 5.38 per cent and HPCL went up 4.75 per cent.

Steel producers agree to reduce prices

Steel producers today announced a price cut between Rs 500-1,000 per tonne in response to the repeated requests by the union steel ministry.

Industry leaders announced the price cut, which will be with immediate effect, following their meeting with Steel Minister Ram Vilas Paswan here today.

"The minister expressed concern over the impact of rising steel prices on the common man. We explained the pressure from rising cost of inputs like iron ore, coal, gas, crude oil, rail and sea freight. However, a voluntary decision has been taken to roll back prices and moderate the impact on the public," said Naveen Jindal, executive vice chairman and managing director, Jindal Steel and Power, on behalf of the steel producers.

The price of TMT bars and rounds have been cut by Rs 1,000 per tonne while hot rolled coils have become cheaper by Rs 500 per tonne. Most steel producers had increased price by an average Rs 2,500 per tonne with effect from February. Earlier, in January, price was hiked by an average Rs 500 per tonne.

Steel producers also put forward their demand for lowering of excise duty and railway freight. "All producers want excise duty to come down to 8% from the current 16%," said Jindal.

"We are concerned with the impact of rising input cost on the profit of steel producers. Our ministry will write to the finance ministry to lower the excise duty from the current 16% and to the ministry of railways to reduce freight," said Paswan.

"The price hike has impacted users and downstream industries, and we support the minister’s efforts to moderate the impact," said S K Roongta, chairman, Steel Authority of India (SAIL).

Explain price hike, Paswan to steel firms

The government today asked the steel industry to justify the frequent price hikes and said that failure to do so could attract a price regulatory mechanism. The warning comes a day after major domestic steel makers raised prices of their products,

Steel Minister Ram Vilas Paswan said today.the usual alibi given by steel makers for raising the prices was an increase in rates globally.

"We will meet the steel companies within a week to seek a justification for frequent price hikes. If it's not justified, we will ask them to cut prices,”

“The per capita steel consumption of 45 kgs in the country is much lower compared to that in most developed nations. Prices should be reasonable to increase our consumption”, the minister said.

The cement industry had also drawn the same reactions from the government when they increased prices after last year’s Budget. The government had then termed the hikes unwarranted.

Paswan, however, gave the steel industry something to cheer about by saying that the ministry has proposed reduction in import duties of some critical inputs consumed by the steel producers.

The ministry has proposed reduction in customs duty of iron ore from the current level of two per cent for the next budget. It has also proposed complete abolition of custom duties on coking coal and scrap.

Currently, coking coal attracts a duty of five per cent while scrap has a duty of three per cent. Exuding confidence that the steel sector was moving forward, Paswan pointed out that if the capacity-expansions announced by the steel major fructify in time, India was likely to have a steel production of around 124 million tonnes (mt) by 2012 and 275 mt by 2019-20.

He said steel demand was likely to grow 10 per cent in the next few years. The Planning Commission's Working Group on steel has projected a demand of 70.34 mt for finished steel and 80.23 mt for crude steel by the end of the 11th Plan.

According to a steel ministry note, the country is likely to rope in investment to the tune of Rs 2,76,880 crore by 2012 and Rs 8,70,640 crore by 2020 in the sector.

On the contentious issue of iron ore export, Paswan said ore export should only be allowed after meeting the domestic requirement.

Rising steel imports may spell crisis for steel industry

The Steel Ministry expressed serious concerns on rising steel imports and warned that unless production of the alloy grew, it could spell a crisis for the domestic steel industry, reports Business Line.

Steel imports have shot up by 4.18 million tons between April to November this year against 2.3 mt in the same period last year, marking an increase of 77%. Though production improved by 6.7% from 31.66 mt to 33.6 mt during the period, consumption too has substantially grown by 12.6%.

In the absence of new capacities and rising input prices, small steel producers are being affected, so they are resorting to imports to meet their domestic requirements.

Iron ore spot prices have shot up by more than USD 50 during the past few months, which have put the small-scale producers at a disadvantage. Besides, steel prices in the international market have been somewhat stable and that was leveraged by the small steel producers to hold on to their clientele.

Steel exports too have risen 6% to 3.38 mt against 3.16 mt during April to November this year.