Kolkata: A sharp rise in the costs of key raw materials could hit the production and profit margins of Tata Steel Ltd’s European units—which depend entirely on merchant miners for inputs—and force the firm to raise steel prices, managing director H.M. Nerurkar said.
Experts said steel producers are expecting to raise prices globally over fears that the costs of iron ore and coking coal could go up. This, in turn, could hit the demand for steel.
Ore and coal costs could jump by 80-90% over last year, Nerurkar said. This, along with hardening freight rates, would raise the production cost of European steel units by $120-140 (around Rs5,300-6,200) a tonne. The price of hot rolled coils, the benchmark price, currently hovers around $700 a tonne internationally.
Tata Steel’s European factories—from its acquisition of Anglo-Dutch Corus group in 2007—have a combined capacity of 17 million tonnes, after closure of the Teesside cast products factory in the UK.
Note of caution: H.M. Nerurkar, managing director of Tata Steel. Indranil Bhoumik / Mint
Nerurkar said rising cost would force his firm to raise steel prices, but did not mention by how much. “The increase in prices could depress steel demand… I hope that it does not force us to cut production,” he said of the firm’s European operations.
All of Tata Steel’s European factories have to buy their coal and ore supplies, while its Indian facility at Jamshedpur sources all its ore and 45% of coal needs from captive mines.
“Globally steel producers are saying they are going to raise prices by at least 20-25%,” said Kameswara Rao, India leader, utilities and mining practice at consulting firm PricewaterhouseCoopers, adding: “This may not immediately impact demand.”
But Navin Vohra, partner and national leader, metals and mining at Ernst and Young, said if raw material prices rose and steel firms were forced to raise prices further, demand could take a hit.
For the first time, steel firms worldwide have also been forced to agree to quarterly price contracts for coal and ore against year-long agreements earlier. This is adding to Tata Steel’s concerns, Nerurkar said.