Coal price hike to cost steel firms Rs 300/tonne

The cost of production for steel firms could go up by Rs 250-300 per tonne following Coal India's (CIL's) decision to hike coal prices by an average of 16.6 per cent.

Although the country's large sponge iron players - Jindal Steel & Power, Monnet Ispat and Tata Sponge & Iron will be insulated from this price hike as they have captive coal resources, the industry will have a significant impact.

"There could be a an increase of Rs 250-300 per tonne in the cost of production," a senior industry official said. However, the exact increase will be calculated in a few days, when the exact price list is given to the sponge iron producers.

Some companies will pass on the hike while others will absorb the costs due to competitive pressures.

"All small sponge iron players will be absorbing about 50-60 per cent of the total cost increase, while the balance will be passed on to the consumers." Sponge iron prices have softened recently to stand at Rs 9,600- 9,500 per tonne.

Meanwhile, the Steel Authority of India, which buys around four million tonne of coal from Coal India, will also be impacted.

A SAIL spokesperson said: "The company is reviewing the situation and will be in a position to quantify the cost differential tomorrow. Most of SAIL's coal purchase from CIL is through long-term contracts, which has a price escalation clause. The impact of the coal price increase will be worked out accordingly."

Steel analysts said: "SAIL and Rashtriya Ispat Nigam could experience a 10-15 per cent rise in costs of production and, given the informal agreement by the steel companies to keep prices constant, it will be difficult to increase finished steel prices."

Power producers can pass on the increased costs in the tariff as the fuel costs are a pass through.

However, a senior Tata Power Company executive said there would be no immediate impact on the price at which it supplies power in Mumbai as it is entirely using imported coal at present.