The recent rise in freight rates by Indian Railways has set the stage for a second round of price increases in the steel sector in a month.
Steel Authority of India Ltd (SAIL) had already increased prices by Rs 500-1,000 a tonne on the back of the freight increase, effective March 7 and across flat and long products, depending on the distance, its officials said. JSW Steel has made an interim increase, pending a higher and wider one. “The increase is steep, unexpected and inflationary in nature. We have increased prices of long products in the interim, till we work out the full impact. Once we are done with it, we will take a call on how much to increase in specific products,” said JSW’s director, commerce & marketing, Jayant Acharya.
Essar Steel is also mulling a rise. “The increase in rail freight will affect the steel industry badly, both on iron movement and movement of finished goods,” said its executive director, strategy & business development, Vikram Amin. Add the impact on coal, thermal and coking, and the impact is significant.
In long products, used primarily in the construction sector, this would be the second increase this month. All steel companies had raised prices of long products, by Rs 1,000 a tonne on March 1, led by better demand, for a consecutive month.
For Tata Steel, which has not yet passed it on to the customer, the freight rate would translate to a cost push of Rs 450 crore annually. “It’s not just iron ore; the companies will have to bear the additional cost on finished steel as well,” a Tata Steel official said. The company predominantly uses rail transport.
The railways have increased the freight rate on domestic iron ore, while bringing it down for iron ore exports to the same extent. Till March 5, the freight rate on domestic iron ore was Rs 742 a tonne. After the rise, it is Rs 950 a tonne. For each tonne of steel, the ore requirement is about 1,700 kg and 1,000 kg of coking coal.
Steel companies are likely to take it up with the ministry. “The steel ministry generally raises concerns when prices are hiked. The ministry should now take up our case,” an industry representative said.