With rise in iron ore rates, steel companies hike prices after 4 months

Taking cues from the global market, domestic primary steel producers have raised prices of the commodity by Rs 750 per tonne from February 1. This is the first hike in domestic steel prices since October.

"Domestic steel prices were in the range of Rs 42,000-44,000 per tonne depending upon various products. The hike in prices across products is about Rs 750 per tonne," said a JSW Steel source close to development.

Naveen Jindal-led Jindal Steel & Power, Tata Steel, Rashtriya Ispat Nigam Ltd and Steel Authority of India (SAIL) are among the other primary steel producers in the country.

Globally, steel prices have risen on account of rise in iron ore prices--a key raw material used in the making of steel. The $40 per tonne hike in global steel prices has prompted domestic steel producers to raise prices in the domestic market even as local iron ore prices remain weak as against global ore. Global steel price trend is also firm due to falling production in China.

"We have a bullish outlook on domestic steel prices at-least for the next six months as global trend is positive and there is strong demand for steel in the domestic market," informed Seshagiri Rai, joint managing director and group chief financial officer of JSW Steel at the earnings conference held here on Wednesday.

Iron ore prices rose in the global markets after an accident in Brazil, one of the major exporters in the World. The global industry is expected the demand to go up from next week, which would support a positive price outlook for the industry. Back home, the scenario is different. Over the last five months, miners including state owned miner NMDC have been reducing prices. NMDC had cut prices by 30 per cent since October.

Domestic iron ore miners in Chattisgarh are seeing their leases coming to end next year and hence miners are trying to extract as much ore as possible. This has led to surplus in the market placing pressure on ore prices domestically.

Meanwhile, rating agency ICRA said that supply from Brazil has been impacted due to the tailing dam collapse in one of the mines there and going forward safety measures expected to be more stringent at the mines in Brazil. However, there is sufficient iron ore available in India and is likely to ensure that ore prices do not inch up in near term due to this global event.

Domestic iron ore supplies would exceed the demand by around 25 million tonne, and the situation is unlikely to change materially in FY20 when most of the merchant mining leases would expire in March 2020.

The total iron ore requirement in India for FY19 is 201.2 million tonne, while the estimated domestic iron ore production is 210 million tonne with imports at 15.7 million. This leaves the country with a 24.5 million tonne surplus iron ore during the year. Increased production in Odisha during the fiscal would more than offset the production loss in Goa due to regulatory issues, said the ICRA report.

Excess supply for iron ore is also reflected from the fact that NMDC, despite suspension of its Donimalai mine in Karnataka in November 2018, effected price cuts to the tune of Rs. 950 per tonne for iron ore fines and Rs 1250 per tonne for iron ore lumps since November 2018 from its mines in Chhattisgarh. This includes a price cut of Rs 200 per tonne in February 2019 despite contrarian trend in international iron ore prices. Ore prices in Odisha have also seen a drop in the last few months.