Financial Daily from THE HINDU group of publications
Friday, Nov 28, 2003
Industry & Economy - Steel
Steel prices may be hiked yet again
Shyam G. Menon
Mumbai , Nov. 27
FACED with rising input and freight costs, domestic steel manufacturers may resort to another round of steel price increase in the near future, possibly next month. "There are signs of it," a senior industry official said today.
The extent of increase is being speculated as around Rs 500 per tonne of basic hot-rolled coil. The view was corroborated by a top-ranking official at a another steel company who pointed to rising international steel prices as trendsetter, but then qualified impact citing the practice at select companies - like Tata Steel - of bundling majority of sales in long-term contracts.
On the input side too, long-term contracts help cushion cost increases, as for instance with Jindal Iron & Steel Company (Jisco), wherein zinc for galvanising needs is tied up long term from Hindustan Zinc. In the process, Jisco now accounts for 16-18 per cent of Hindustan Zinc's output.
On the other hand, zinc prices have been rising during the current year, gaining up to 20 per cent due to buoyant demand. There were a few smelter shutdowns as well in zinc, causing prices to firm up.
Another case of revised input cost is that of imported metallurgical coke, price of which more than doubled in the last six months to $215 per tonne.
Additionally, dry bulk freight rates have moved northward, the improved fortunes of shipping companies proof for the strong recovery in freight rates. Steel companies are affected by higher transport cost for both raw materials and finished products.
Internationally, steel companies have been increasing product prices in line with rising raw material prices and freight charges. News reports today said China Steel Corp, Taiwan's biggest steel company, was planning to raise prices of some of its hot-rolled and cold-rolled products as prices of raw materials, including coal, metal, scrap steel, steel slabs, have been going up.
According to one of the officials spoken to here, domestic steel prices are still lower than international prices. "A price hike could come next week because inputs cost have been consistently edging up," he said. Besides, as recent studies showed, end-users of steel have not been seriously impacted by the rise in steel prices over the last one year since manufacturing scales have risen sharply in recent times.
In a recent study, Crisil remarked higher steel prices have only a limited impact on end-user segments including auto and auto ancillaries. "In the case of cars, for example, on an average, it takes about 500 to 600 kg of steel to produce a car. Given that steel prices have increased by about Rs 5,000 per tonne over the last year - cold-rolled steel is priced at about Rs 30,000 per tonne today compared with about Rs 25,000 in June 2002 - the incremental cost for a carmaker is only about Rs 2,500 per unit, which is less than 1 per cent of the car's price," the rating agency had said.
In the construction industry, steel costs are lower than 5 per cent for roads and 10 per cent for buildings.
However, equity analysts tracking the sector were sceptical about an immediate price increase. "A price hike is on the cards and it may come through in December. But steel companies would want to play cautious as not to invite any government attention towards a possible change in customs duty on imported steel," one of them said.
The eventual decision will run the sliver between that and international price trends.
Steel price increase is clearly a tougher call this time around.
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