Steel firms grapple with fresh input cost rise

Steel companies such as the Steel Authority of India (SAIL) and Tata Steel are grappling with a fresh rise in input costs. The price of imported coking coal, a key input, has doubled within a month's span.

"The spot price of coking coal is at $580-$600 a tonne levels compared with $270 a tonne in mid-February," points out analysts at domestic brokerage houses. Indian steel companies largely import coking coal on a spot basis, especially from Australia.

The fresh rise in coking coal prices is attributed to port congestion at Australia coupled with a reduction in output levels in other key producing countries like South Africa.

Analysts, however, feel coking coal prices will ease soon.

Domestic steel companies typically raise product prices in the first week of every month and any change is expected only in April.

In the first week of this month, domestic steel companies had hiked prices by Rs 1,500-3,500 a tonne despite strong opposition from the central government.

Steel companies, while hiking product prices in March, attributed the increase to higher input costs, like coking coal and energy prices. The hike had resulted in prices of domestic hot rolled coil (HRC) steel reaching more than Rs 33,000 a tonne.

Steel companies convert coking coal to coal, which is then used along with other inputs to make steel grade products.

Meanwhile, Usha Martin, a speciality steel maker, is raising steel product prices by more than Rs 7,000 a tonne from April 1, according to Somnath Guha, chief operating officer of the company's steel unit.

"We have to raise prices to protect our margins as raw material prices have been moving up strongly," Guha said.

Prices of key raw materials, such as metallurgical coke, iron ore, and pig iron, have been on an upward course on global supply tightness.

The company had raised prices on February 1.

Other alloy and speciality steel makers, including Mukand, ISMT, and Sunflag Iron & Steel, are also planning to up steel prices from April 1.

Foundry industry affected, too
Indian Foundry Association (IFA) on Wednesday said the foundry industry across the country had been severely hit by rise in raw material prices over the last two years.

IFA Chairman Pawan Sureka said that since March 2006, prices of pig iron, the main raw material, had increased from Rs 12,500 a tonne to Rs 24,900 a tonne.

He said unless the government stepped in to check the price rise of pig iron, most of the foundry owners would have to close shops.

The government should restrict export of pig iron to check domestic price rise, he added.

The foundry industry was not able to pass on increased raw material prices to the consumers, which were mainly in the government sector, he said.

Sureka said that while the pig iron producers contributed the price rise to higher input costs of iron ore and coke, there was no parity between the actual rise in pig iron prices to input cost hike.

IFA urged the pig iron manufacturers to keep their prices unchanged for a period of three months.