Producers have started passing on the increased burden of the rising prices of steel, cement, coal, iron ore, tyre, petrochemicals and plastics’ raw materials. Globally, the prices of petrochemicals like benzene, naphtha and ethylene, which are basic raw material for producing a number of chemicals and polymers, have also shot up.
The Reserve Bank of India (RBI) would have more reasons to worry about the mounting inflation pressure, with prices of industrial commodities going up fast across segments. This would have a serious impact on the non-food price segment of the Wholesale Price Index, experts said.
Anand Shanbhag, head of research, Avendus Capital, said: “A rebound in the prices of manufactured commodities is likely to lead to a rise in material cost for industrial products. Existing long-term supply contracts may insulate producers for a while but renewals would happen at a higher price. The rebound in industrial activity supports the manufacturers’ ability to pass through the rising cost of inputs.”
Platts’ global petrochemical index crossed the 1,200-mark last week, the highest after October 2008. The index represents important petrochemicals, which are used for plastics and synthetic textiles, among others. In 2009, ethylene went up 115 per cent, naphtha 112 per cent, benzene 50 per cent and PVC 24.5 per cent. In 2010, benzene is already up 17 per cent and PVC 5.4 per cent.
Experts said prices might have settled for the moment, but demand was high, enabling producers to pass on the increase in cost. M P Taparia, managing director of Supreme Industries, said: “The demand for petrochemicals and polymers is rising fast and now the Euro zone has also joined in. This has led to a sharp increase in prices. I don’t see prices falling more than 5 per cent from here.”
Steel prices have been increasing since December, initially led by a revival in demand and now on the back of a cost-push from raw materials. Prices of hot rolled coil (HRC), the benchmark for flat steel (used in consumer durables and automobiles) has increased by Rs 2,500 a tonne over the past three months to Rs 30,000 a tonne.
Jayant Acharya, director (sales and marketing), JSW Steel, said raw material prices had appreciated more than anticipated.
Iron ore prices increased 110 per cent from $64 a tonne to $135 a tonne during April 2009-January 2010. Spot coking coal prices have appreciated about 41 per cent to $170 a tonne. While iron ore accounts for about 35 per cent of the input cost, coking coal accounts for 50 per cent.
Acharya said coking coal and iron ore prices had been moving up consistently and were likely to move up further. Long-term contracts would come into force from April. “In the long term, it will reflect in steel prices,” he said. It’s not just steel, copper prices have rebounded from a three-month low with prices now hovering around $6,400 a tonne.
Hindustan Copper sources said there was some correction in the past couple of months, but prices were on an uptrend. It could touch $8,000 (over Rs 3.7 lakh) a tonne and then again subside. “The demand was largely led by China and was picking up slowly. But it will take two years for a full recovery from the scenario,” they said.
Aluminium prices were expected to pick up May onwards. Sudip Datta, chairman and managing director, Ess Dee Aluminium, said prices were at $2,300 (about Rs 1.05 lakh) a tonne, but would move within the range of $1,900-$2,100 a tonne. Even rubber prices have doubled during the last one year and quoted at Rs 134 per kg. Industry sources said from January, tyre companies have raised prices 3-5 per cent and were considering another revision by the month end if prices did not soften.
