Hike in iron ore prices may lead to rise in cost of steel production

8 January 2018

The recent price hike of iron ore by the country’s largest iron ore miner NMDC will lead to rise in cost of steel production. NMDC’s decision to hike prices of higher grade iron (lumps) by Rs 500 to Rs 3,100 per tonne for the current month is expected to increase cost of steel production by Rs 1100-1300 per tonne.

Thus, to overcome the burden of high raw material cost, steel companies will have to pass on the increased production cost to customers. NMDC also raised the prices for iron ore fines, which is inferior grade ore, by Rs 500 to Rs 2,760 per tonne for January.

The steel manufacturing companies are also witnessing uptrend in other costs of raw materials, such as coal, refractory and electrodes. This will further put pressure on steel companies to pass on the increased cost of production to their customers.

Besides, the rise in raw material costs is likely to badly hit struggling steel makers who are heavily burdened with huge debt on their balance sheets and are facing insolvency proceedings.

Source: DALAL STREET INVESTMENT JOURNAL