Soaring global nickel prices combined with a recently introduced lower duty on a range of finished metals will hit margins of Indian stainless steel makers, a top industry official said on Wednesday.
N.C. Mathur, president of the Indian Stainless Steel Development Association, said a jump in nickel prices to about $36,000 per tonne, from about $26,000 per tonne in 2006, had surprised the industry.
Duty changes introduced by the government on a range of commodities to help curb rising inflation would add to firms’ woes as imports became more competitive.
“In the current quarter, we are afraid that we will be under a lot of pressure on margins because of high input costs and the finance minister’s decision to reduce import duty from 7.5 percent to 5 percent (on stainless steel),” Mathur told Reuters.
“Customers don’t want to accept high prices in Asian markets and we have to absorb the price. That will hit the margins in the current quarter (January-March). The previous two quarters have been good.”
The nickel market has been reacting to news on disruptions at production sites and inventory levels.
A threatened strike at major Canadian nickel producer Xstrata -- which accounts for just above 4 percent of the world’s smelting capacity -- has driven prices higher.
Available, or on warrant, stocks of nickel in LME warehouses have been hovering around 4,500 tonnes -- little more than one day’s global consumption. They have fallen from around 37,000 tonnes at the beginning of last year.
Two-thirds of world nickel output is used to make stainless steel, and demand from the industry is expected to grow 7.5 percent this year.
Nearly 70 percent of the stainless steel products made by Indian manufacturers have a low nickel content of 1-4 percent, but the rise in prices would still pinching them hard.
EXPANSION ON TRACK
“One percent nickel accounts for $400 per tonne in the final cost of making stainless steel at current nickel prices. So it is still very expensive,” Mathur said.
He said the stainless steel industry had also asked the government to reduce the import duty on nickel to zero from 5 percent to give some relief to manufacturers.
If that were to happen, firms would be willing to reduce prices by 2,000-5,000 rupees per tonne to 100,000 rupees-300,000 rupees per tonne, he said.
India produces 1.7 million tonnes of stainless steel and exports 600,000 tonnes annually. Production is growing at 10-12 percent a year.
But Mathur, who is also a director at Jindal Stainless Ltd. , said the rise in nickel prices and the customs duty changes would not affect his company’s expansion plans.
“We will expand to 720,000 tonnes stainless steel capacity annually at our existing plant at Hisar in Haryana, as an ongoing expansion project will be operational by 2007/08,” he said.
Jindal will produce 600,000 tonnes in the financial year ending March 2007.
The company is also putting up a greenfield stainless steel project with a capacity of 1.6 million tonnes.
“This will be one of the few unique fully integrated stainless steel plants in the world, from mining to raw materials (ferro alloys) to finished steel rolled products,” he said.
A ferro-chrome plant with capacity of 150,000 tonnes and a 250 MW power unit will start operating by mid-2007.
The entire Rs. 115 billion ($2.6 billion) project is being constructed in three phases and will be completed by 2012. Stainless steel production is slated to begin in 2009/10. ($1=44.15 rupees).