Steel companies to raise prices on rising input costs

After oil companies, it's now the turn of steel firms to hike prices. Steel prices are expected to go up between Rs 600 and Rs 1000 per tonne with effect from June 1, the first such hike this year. Soaring prices of raw material in international markets has compelled domestic steel manufacturers to pass on the increases to its consumers - mostly automobile and consumer durable firms. The margins of automobile and consumer durable firms will further erode due this price hike.

Sajjan Jindal-led JSW Steel, India's third biggest steel producer, is likely to increase prices by Rs 600 per tonne on flat products to mitigate the high input cost on margins. Flat products are largely consumed by the auto and consumer durables sector while long products are used in construction and infrastructure.

Confirming the move, Seshagiri Rao, joint MD, JSW Steel & Group CFO, told TOI that a decision on the quantum of increase will be taken by Wednesday. "The increase is primarily on account of soaring raw material prices globally. Coking coal, which accounts for about 50 % of steel production cost, has gone up to $335 per tonne from $220 per tonne, so the raw material cost pressure is quite high," he said.

Companies may not pass the entire cost to consumers owing to the already high interest rates and inflation, which could hurt demand. However, it would be to the extent to mitigate the impact of high input costs on their margins, an official in a steel company said.

An Essar Steel spokesperson said; "On the back of rising input costs and strengthening of the international prices over the last couple of weeks, there is a case for upward revision of steel prices." However, he did not elaborate on the exact price hike that the Ruia-promoted company is considering.

Coking coal prices has risen significantly due to recent floods in Queensland, Australia, which is one of the largest suppliers of the commodity, besides disrupting mining and shipments. Around 70 % of India's coking coal demand is met by imports and out of that, around 80 % of coking coal is imported from Australia.

Besides, coking coal, iron ore prices have also firmed up by $50 per tonne compared with last year and this may further impact the profit margins of Indian steel firms. During the last quarter, steel prices remained stable globally. Indian steel prices also remained flat at around Rs 35,000 per tonne during the period.

Analysts of the steel sector believe that margins of domestic steel firms are under pressure and will continue to remain under pressure till the soaring raw material costs are passed on to consumers.

As a result of the increase in steel prices, automobile and consumer durables firms are likely to feel pressure on their margins.India's steel consumption is expected to grow by about 12 % in coming years, which would enable it to emerge as the world's third-largest steel-using nation after China and the US.

Source- The Times of India

Stevenson
Management Trainee- Fundamental Analyst
Denip consultants Pvt.Ltd