Steel prices up via 'surcharge'

The country's leading steel producers have devised a new strategy to pass on rising raw material costs to the end users without raising prices.

Companies are now levying raw material surcharges while keeping the base price unchanged.

"We have put a raw material surcharge of Rs 5,000 a tonne on hot-rolled coils (HRC) with immediate effect to pass on the 200 per cent increase in coal prices," said Seshagiri Rao, director (finance), JSW Steel.

Ispat Industries and Essar Steel have imposed a similar surcharge.

"Since there is pressure from rising raw material prices, we have decided to pass on part of that increase by means of a surcharge. As and when raw material prices come down, the surcharge could be reduced or withdrawn," said industry sources.

Hot-rolled coils are primarily used to make pipes and have many direct industrial and manufacturing applications, including the construction of tanks, railway cars etc.

The government may soon announce a slew of measures including an export ban and an excise duty cut to bring down prices of steel and steel products.

An increase in its prices, therefore, could pressure the margins of these industries and compel them to raise product prices.

The contract price for coking coal has increased from $98 to $300 a tonne with effect from April 1, while the iron ore price has gone up from $52 to $86 a tonne.

Scrap prices have also gone up from $450-475 a tonne to $550-575 a tonne. All these changes together imply a $300-350 increase on every tonne of input cost, especially for those who have no captive resources in coal and iron-ore.

Following a meeting with Steel Secretary R S Pandey last week, steel producers had announced a price-cut of Rs 2,000 a tonne on long products. However, no change was made in HRC prices.

"The input cost of HRC has gone up enormously over the last one year. While the cost-push is in the range of Rs 12,000 to Rs 15,000 a tonne, the price increase is only Rs 7,000 to Rs 7,500 a tonne. The producers are watching the domestic and international situation," Pandey said after the April 3 meeting.

Steel (including iron) has a weight of 3.64 per cent in the wholesale price index. The Inflation rate for the week ended March 22 touched a 40-month high of 7 per cent.

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