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Steel companies have raised prices twice in the current financial year but achhe din (good days) continue to elude them, with the market showing reluctance to absorb any increase in prices.
In July and September, producers of flat steel, used in white goods and consumer durables, had raised prices by Rs 700 a tonne. On both occasions, the companies could hardly pass on the increase, said a steel producer. This is primarily because demand is yet to see any major recovery, even though the clamour for infrastructure development is getting louder from the government side.
Producers are worried about some other aspects, too. Despite a steep drop in raw material prices globally, domestic prices are on the rise due to availability issues. In Odisha, only four iron ore mines are operational.
“In the past week, Odisha miners have increased prices by Rs 300 a tonne,” said a producer. Prices of high-grade iron ore, with 65 per cent Fe content, is now available at Rs 7,100 a tonne. Add to it logistics cost of Rs 1,500 a tonne and it's clearly an uncompetitive scenario.
Iron ore prices have crashed to about $80 a tonne. NMDC prices are still lower than that of private miners at Rs 4,600 for lump ore and Rs 3,160 for iron ore fines. However, the public sector miner has maintained a status quo on prices even as global prices have nose-dived.
Most of the bigger steel producers are now resorting to import iron ore. JSW Steel, which had earlier projected iron ore imports of six million tonnes, is scaling it to 10 million tonnes. “This is affecting margins severely,” said a producer.
As though that wasn't enough, India's steel exports of non-alloy flat steel are set to drop by a million tonnes, adding to the supply and pressure on prices. India exported nearly six million tonnes of steel products in the last financial year.
In the first quarter of FY15, total exports of non-allow flat steel stood at only $1 billion.
The finished steel production in India is about 87 million tonnes. “By March 2015, another 8-10 million tonnes will be added. Exports have to be a balancing factor. If state taxes rebated, then it will be WTO (World Trade Organization) compatible and will encourage exports,” said H Sivramkrishnan, chief commercial officer at Essar Steel.
One of the main reasons for lower exports is the rise in the production cost of Indian steel and the higher cost of basic raw material, a producer explained.
In the April-June quarter, the drop in flat non-alloy steel was 20-25 per cent. “The trend is continuing for the July-September quarter,” Sivramkrishnan added.
The Federation of Indian Export Organisations and industrial chambers have already taken up the issues with the commerce ministry.
“The inverted duty structure of raw material and the supply cut on allocated gas to steel sectors are also some of the factors. This needs to be suitably addressed by support measure,” said a producer.
