Steelmakers to raise prices as input costs rise on rupee depreciation

1-Sept-2018

Domestic steelmakers are set to increase prices from next month as a historical currency erosion drives up costs of imported raw material.

The increase is also the result of attempts by manufacturers to plug the gap between domestic and international steel prices. Currently, Indian steel prices are at a 5-8% discount to the prevailing rate overseas.

“The currency impact is playing out in the import of coking coal, international purchases as well as on imported fuel, which is having an indirect effect by way of logistics costs going up,” said Jayant Acharya, director of commercial and marketing at JSW Steel. “In view of this, we are looking at raising prices over the next two months. Longer term and quarterly auto contracts with renegotiated terms will come into effect from October.”

The price of imported coking coal, a key raw material in steelmaking, has increased 14% since June (on a year-on-year basis). Prices of graphite electrodes, including those that are imported, have increased 16%. Prices of iron ore, largely produced domestically, have gone up 11% and iron ore fines prices by merchant miners in Odisha rose by Rs 900 per tonne.

The industry expects a price rise of Rs 1,500 per tonne for both hot rolled coils in flat products as well as downstream products. For long products, the increase may be more.

Ranjan Dhar, chief marketing officer at Essar Steel, said this may affect the second-quarter earnings of steel companies. “After stellar first-quarter results for steel companies, the second quarter may lack the same lustre because of the cost-push inflation,” Dhar said.

The increase follows a depression in prices attributed to seasonality on account of the monsoon season, when construction slows down. Additionally, steel traders that engage in arbitrage imported almost 120,000 tonnes of steel, which put downward pressure on prices, and the increases will be from that level.

“The traders imported at a loss and have depressed prices. There should be a more symbiotic relationship between mills and traders for the objective of ‘Make in India’ to succeed,” Dhar said.

The situation in China, the world’s biggest steel producer, has been stable, preventing volatility in prices.

“For the last six to seven months, there has not been much fluctuation in China steel prices, which is expected to sustain with the mill closures happening mostly in the unorganised steel sector,” said Goutam Chakraborty, an analyst for metals at Emkay Securities. “With demand coming from infrastructure also holding, there is a case for the price hike.”

Chakraborty added that the level of imports by India has also gone up, supported by domestic demand.

Source: THE ECONOMIC TIMES