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Steel makers to hold prices for now, despite rising input costs

Steel makers to hold prices for now, despite rising input costs
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First Published: Thu, Aug 07 2008. 12 08 AM IST

Pricey commodity: Jindal Steel plant in Hisar. Global prices have been rising on the back of robust demand. (Rajeev Dabral / Mint)
Pricey commodity: Jindal Steel plant in Hisar. Global prices have been rising on the back of robust demand. (Rajeev Dabral / Mint)
Updated: Thu, Aug 07 2008. 12 08 AM IST
Mumbai: Steel makers will not raise prices despite rising input costs after a three-month “freeze” on steel prices ends on 8 August. These firms had agreed in May to hold prices for three months to help the government battle rising inflation.
Steel sells in India at about 30% or $300-$350 (Rs12,600- 14,700) a tonne below global prices, as companies have not been able to pass on the increase in costs of key inputs such as iron ore and coking coal to customers.
“We are not going to increase prices, at least in this month,” Sajjan Jindal, vice-chairman and managing director of India’s third largest steel maker JSW Steel Ltd, said on the sidelines of a Mumbai conference.
Pricey commodity: Jindal Steel plant in Hisar. Global prices have been rising on the back of robust demand. (Rajeev Dabral / Mint)
A spokesperson for Tata Steel Ltd, the country’s largest private sector manufacturer, said, “We are not raising spot prices.”
“We are status quo on prices,” a spokesperson for Essar Steel Ltd said.
An Ispat Industries Ltd spokesperson said, “We have not changed prices. If we do, we will let you know.”
Mint could not contact Steel Authority of India Ltd, India’s largest steel producer.
Analysts, however, say prices have seen an increase on contracts that private steel makers signed directly with clients. This, they say, is based on the jump of about 20% in realizations per tonne witnessed in the quarter to June of the steel firms, compared with the March quarter.
These contracts do not form part of the data the government collects to calculate inflation. Analysts also say the proportion of sales through such contracts has increased since the freeze in spot prices in May.
Ram Vilas Paswan, India’s steel minister, in late July had said that he had asked steel makers not to increase prices in “national interest”.
India is battling a 13-year-high inflation, and steel prices have a considerable presence in the Wholesale Price Index (WPI) that is used to measure inflation.
Global steel prices have been rising in recent years on the back of robust demand from infrastructure, real estate and automobile sectors in India, China and other emerging economies. Iron ore prices have risen by 65% and coking coal by more than 200% in the fiscal year to March. While many domestic steel makers own iron ore mines, most rely on coking coal imports.
Some firms, such as Essar Steel and Ispat Industries, depend on long-term contracts with the country’s largest iron ore producer, NMDC Ltd,for their requirements. According to industry sources, NMDC is still undecided on new pricing on its long-term contracts. The state-owned miner had raised iron ore prices by 47.5% with retrospective effect from 1 October 2007.
The current spot market price of iron ore is $110 a tonne in India. Contract coking coal price is now about $300 a tonne, up nearly 200% from $98 in March, while spot prices are about $350 a tonne.
Some industry observers maintain that the continued freeze on prices will affect the industry’s growth and the investments planned in the sector since the cost of funds has also risen considerably.
Steel producers have planned massive expansion to meet rising demand for steel products from infrastructure projects. India is currently the fifth largest steel maker in the world and is expected to double its capacity in the next three to four years.
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First Published: Thu, Aug 07 2008. 12 08 AM IST
More Topics: Steel | Inflation | JSW Steel | Tata Steel | WPI |