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Input cost pressure may lead to price rise: Essar Steel

Input cost pressure may lead to price rise: Essar Steel
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First Published: Tue, Mar 23 2010. 10 33 PM IST

 Cost push: J. Mehra, chief executive, Essar Steel.
Cost push: J. Mehra, chief executive, Essar Steel.
Updated: Tue, Mar 23 2010. 10 33 PM IST
Mumbai: International steel prices have surged by almost Rs5,000 a tonne in the past 45 days along with a near-22% rise in the cost of iron ore and coking coal. Analysts see a further hike in steel prices in April. J. Mehra, chief executive, Essar Steel Ltd, spoke about the road ahead for steel prices. Edited excerpts:
Cost push: J. Mehra, chief executive, Essar Steel.
Will steel prices rise in April given that iron ore prices are continuing to spurt up?
There has basically been a cost push on the major inputs to steel making—i.e., coal and iron ore. Coal has gone up by 55%...on a quarterly basis pricing. So...one could expect some more price increases taking place in coal.
Iron ore has gone up by 40% at the beginning of this year and...there may be a mid-term revision again and it may go up by another 40%... I believe this would cause an increase in the cost of production (of steel) to an extent—a minimum (of) $150 (Rs6,840) per tonne.
Obviously, the steel companies would not be able to absorb this entirely. They will have to pass it on.
What quantum do you expect to be passed on?
It is very difficult to say what the market would be able to absorb... That would depend on the market situation from time to time. So I won’t be able to say as to what part of this total increase...would be passed on to the market by various companies. But there is definitely a potential to increase the prices. That is for certain.
In the next couple of quarters, how much of an impact do you see on margins?
There would be people who would have their inputs as captive. To them it won’t make any difference; any price increase would increase their margins. And those who do not have (captive inputs), if they are not able to pass on (the price increase) fully, their margins would be under pressure.
Would spot prices, even for those locked into contracts for iron ore and coal, see a $150 per tonne increase in cost?
Yes. For example, you take the price of coal. It has moved up by $70 per tonne at the point and spot prices up by $100. If you take an increase as a result of this, it would be about $70 per tonne. Then there is a price increase which has taken place to the extent of about 40% in iron ore. The impact of that is another $75.
The contracts are valid normally in the rest of the world up to 31 December. In the...Indian context, it maybe 1 April.
So obviously, the price of iron ore in India has increased because the contracts provided for such an increase, which has taken place already. Further increase would take place effective 1 April.
cnbctv18@livemint.com
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First Published: Tue, Mar 23 2010. 10 33 PM IST