Red alert for metal prices

Worse to come in April, say players.

Commodity prices have gone through the roof in the last three months with the sharpest increase seen in raw material prices for steel.

Metals players say the last three months will pale in comparison to the surge expected in the coming months, impacting India's construction, automobile and consumer durables industries.

Prices for steel, iron, ore, coking coal and copper are all expected to surge between 15 and 65 per cent from April.

Spot prices of coking coal in the international market since January have increased 58.62 per cent to $230 per tonne till March while Indian iron ore export (one of the benchmark prices) has seen an 8 per cent increase to $146 per tonne during the same period, according to Metal Bulletin Research (MBR) data.

Last week alone saw Indian iron ore export prices increase $1 to $4 per tonne from a week ago.

The MBR steel raw material index increased from 198.42 for the week ending January 8, 2008, to 229.31 at the beginning of March.

The increase in raw material prices has been reflected in steel prices. Global hot rolled coil (HRC) prices have increased from $686 per tonne to $840 per tonne during the same period.

Other metals are not far behind, with aluminium prices increasing 18 per cent to $2,842 per tone and copper at a record high of $8,890 per tonne, an increase of 31 per cent.

Most prices in the international market hold good for the domestic industry. For instance, coking coal, which accounts for 50 per cent of the raw material cost for steel, is mainly imported.

Aluminium prices are determined on the basis of landed cost of imported aluminium and copper prices too are dictated by international trends.

Domestic steel prices have increased 15 per cent since January and HRC prices to the consumer were ruling at Rs 35,000 per tonne, ex-plant, lower than landed imports from Europe at $950 per tonne, inclusive of the 5 per cent import duty.

Steel companies without captive iron ore mines source their requirements from NMDC, the domestic public sector mining company, through long-term contracts. NMDC revised its contracts mid-term with retrospective effect from October and increased prices 47 per cent to Rs 2,409 per tonne.

The common factor in the surge is China, the metal and metal intermediaries guzzler. Around 50 Chinese steel mills and many aluminium smelters have cut production due to a power crisis.

With the Chinese government curbing exports, the shortage has only accentuated in the global markets. China is also the biggest consumer of copper and demand is increasing at a fast pace.

R P Singh, general manager (marketing), Hindustan Copper said there is a shortage of copper in the world market.

"Copper has hit a record high and by June or July is expected to achieve a new high at around $9,500 per tonne," he said.

Singh added that domestic copper prices are largely determined by international prices, as 95 per cent is imported.

Another reason for the price surge is the position taken by banks and institutions in the commodity market, in the wake of the volatility in the stock markets.

Overall, there is a broad consensus that prices will surge further.

Steel companies said that HRC prices would go through the roof. The world's largest steelmaker, ArcelorMittal has already announced a hike of 12 to 15 per cent for flat products, which go into making cars and consumer durables, with effect from April 1, 2008.

Iron ore prices are also expected to increase from April by at least 65 per cent and Australian producers companies could even charge a freight premium.

Coking coal prices are set to see unprecedented levels. According to reports, deals have already been struck at more than $300 per tonne and international coking coal companies are looking to increase prices by 40 to 50 per cent from April.

Aluminium could be the lone exception. An industry representative in the upstream and downstream business said, prices would stablise at $2,600 to $2,700 per tonne. He said, the current increase would be passed on to the users of the material. "It is impossible to absorb such high costs," he said.

For steel users, the Budget has provided some relief in the short-term. Venugopal Dhoot, chairman, Videocon group, said the increase in steel prices is not affecting consumer durables prices due to the cut in excise duty. He however said, any further increase in steel prices would be passed on to the consumer.

Binod Agarwal, president, Federation of Automobile Dealers Association of India, said, if input prices increase further, automobile prices would go up after a while.