Corus to see rise input cost in FY11

Corus to see rise input cost in FY11

Kolkata: Tata Steel’s European arm Corus will see a rise in the input cost pressure during the current fiscal as it does not have captive reserves of iron ore and coking coal used in making steel, a top company official said.

Tata Steel’s European operations (Corus) will have to bear the entire cost pressure as it does not have captive mines, company’s managing director H M Nerurkar said on 12 April while announcing the production and sales figures for 2009-10.

However, he maintained that its Indian operations at Jamshedpur would not be impacted by higher prices of coking coal and iron ore as it has captive mines.

The impact on Tata Steel’s Indian operations would be restricted to 55% of coking coal and almost nil for iron-ore as it has adequate captive mining.

Nerurkar said the additional cost pressure will be $120-150 per tonne if 100% of requirement was outsourced by any steel company. This was if increase in coking coal and iron-ore prices moved up by 80-90%.

He said the company was negotiating coal and iron-ore contracts with suppliers on quarterly basis rather than the earlier annual agreements.

Internationally mining firms are entering into iron ore supply contracts for the April-June period at $120 a tonne level, an increase of 80-90% over the contracted rates for the last fiscal.

Also, the mining firms have clinched coking coal supply deals for the period at $200 a tonne level with global steel makers, as against last fiscal’s $105-130 a tonne level.

The rise in input cost will lead to an increase in steal prices, Nerurakar said, adding that the global over-supply scenario will also reflect in the domestic rates of the commodity.

The company also said sale of finished products contracts will be done periodically as against annual contracts.

The jump in input cost will also call for higher working capital, Nerurkar said without giving any figure for Tata Steel’s European operations.

He said as a thumb rule, for a rise in $50 per tonne, working capital requirement will increase for a one million tonne steel company, by $100 million annually.