Steel to become costlier by Rs 1,000 per tonne soon

Spot price already up by Rs 300/tonne, primary producers to followsuit, high transportation cost to raise agri commodities' price too

The proposed 6.5 per cent hike in railway freight rate has made steel products costlier by Rs 300 a tonne in major spot mandis across the country and traders are mulling a further increase to the tune of Rs 700-1,000 a tonne next week.

Ingot price in the benchmark Mandi Gobindgarh (Punjab) market, India's largest spot steel selling market yard, shot up by Rs 300 to Rs 39,750 a tonne on Saturday compared with Rs 39,450 a tonne the previous day. Melting scrap, the valued raw material for steel-making that substitutes iron ore in electric arc furnace, has shot up to trade at Rs 31,200 a tonne on Saturday compared with Rs 30,900 a tonne the previous day.

In line with the spot market, primary steel producers are also looking at the possibility of a price hike in the coming days to pass increased transportation cost to consumers. The industry is mulling a Rs 1,000-1500 a tonne of increase in steel prices in coming days.

"We are working on the impact. Definitely the cost of steel production will go up on freight rate hike with the increase in iron ore transportation cost. But, hike in steel prices depends upon several other factors of which railway freight is just one," said Seshagiri Rao, Joint managing director and Group Chief Financial Officer of JSW Steel.



Railway Minister Sadananda Gowda on Friday announced a 6.5 per cent increase in rail freight cost in addition to a massive 14.2 per cent spurt inlong distance passenger fare.

Anil Suraj, a spot market steel analyst based in Gobindgarh, said, "The implication has already started showing on spot steel prices. The increase of Rs 300 is insufficient, looking at the quantum of rise in freight rates. Freight rate increase will have multiple implications on steel mills as all raw materials including iron ore, scrap, coking coal and ferro alloys will be impacted. Hence, Steel price will go up at least by Rs 800-1,000 a tonne."

R K Sharma, Secretary General of the Federation of Indian Mineral Industries (FIMI), believes that iron ore exports will be unviable. Additionally, domestic movement of raw materials and finished products will be costlier at a time when the steel industry is struggling with lower demand. Consequently, the proposed increase will be a dampener for steel industry, says Sharma.

"Railway freight is one of the most significant factors in determining cost of steel production.With the freight cost going up, all raw materials including coal and iron ore will become costlier. As a natural consequence, coal, iron ore and steel price will go up," said Sanjeev Jain, a metals and mining analyst with global consultancy firm Ernst & Young.

Meanwhile, agri commodities are also likely to become costlier at least by 6.5 per cent in the coming days due to increased transportation cost.