Steel export prices heading up

The Shipping Rate Surge Part-II

Some Indian steel companies have raised their prices for overseas customers in recent months. "The realisation of Indian steel exports to China has risen 10 per cent from $330 per tonne to $360 per tonne in the last month. One reason is the increase in freight," said an executive of a steel company.

Not all steel firms have jacked up export prices yet, but those who have not will do so soon. Essar Steel executives said new export consignments would have to bear the brunt of the rising freight.

"Our exports to West Asia and Southeast Asia have not been affected as these ships are on time charter-- locked into long-term contracts. However, future exports to Europe may be affected as competitive rates for shipping steel are not available in the spot market," an Essar Steel executive said.

A shipping industry executive argues that consumers will eventually pay the price as far as steel is concerned. "The surge in dry bulk rates has been phenomenal. Steel and steel-related movement contributes significantly to the dry bulk movement. This is expected to influence the price of finished goods partly," contends Rajat Dutta, general manager at the Mumbai-based Great Eastern Shipping Company.

In other industries like cement, manufacturers are still absorbing the higher freight. Cement companies imported around 3.5 million tonnes of coal last year, according to the Cement Manufacturers Association. Said Kiran Nanda, chief economist at Gujarat Ambuja Cements: "The rise in freight combined with an increase in the international price of coal and an import duty of 30 per cent have resulted in the cost of production of cement going up. Gujarat Ambuja buys most of its coal from South Africa on annual contracts. While it buys some coal in the spot market, this forms a marginal portion of its total coal imports. That is why the company has remained largely unaffected." Even if increases in freight have had any impact, company officials said it was less than 5 per cent. The appreciating rupee has offset most of the impact.

Nonetheless, if freight continues to climb in the next few months, and assuming that the rupee does not rise proportionately, cost of production of cement could climb. But companies will not be able to jack up prices because there is a cement glut.

Manufacturers in other competition-dogged industries, too, can only stare helplessly at the rising freight. Consider the fiercely competitive colour television industry, for example. Said S N Rai, head, commercial, at LG Electronics India: "Freight has gone up around 6 per cent over the last one year, though there has not been a major increase recently. However, this 6 per cent increase in rates will affect the electronics industry.

The average raw material cost for electronic items is around 50 per cent, of which 20 per cent is imported. Even if the total increase in raw material costs is 10 per cent, after levying duties, the net impact on gross costs will be a 1.5-2 per cent increase."

Videocon group Chairman Venugopal Dhoot said TV manufacturers would bear the higher cost, and not pass it on to consumers.

Yet, at least one industry has reason to be pleased with climbing freight. India's 12 shipping companies together posted net profits of Rs 197.16 crore in the last quarter, 44.94 per cent more than the Rs 136.02 crore they reported in the previous quarter. They are, no doubt, laughing all the way to the bank.

(With inputs from Our Bureaus)