Steel making would now get costlier and around the time when producers are under pressure not to hike prices for end-consumers. This is because the railways have imposed a hefty congestion surcharge as well as changed the freight classification for iron ore to a higher rate. Steel industry sources said this would hike transportation cost of iron ore by about Rs 15 a tonne to about Rs 185 a tonne.
Iron ore is a key raw material for steel manufacture and according to rough estimate 1.6 tonne of iron ore is required to make 1 tonne of steel. Though the move is aimed at discouraging exports, it would also lead to increase in raw material prices in the domestic market. The move comes just a month after the Rail Budget 2008-09 was presented where railway minister Lalu Prasad had announced “no across the board increase in freight rates” for the new fiscal.
The railway ministry on Monday imposed a congestion surcharge of a whopping 100% on iron ore traffic booked to the sidings and good sheds serving ports. This traffic is mainly for exports. This is much higher than the 60% congestion surcharge so far levied on such traffic. Industry sources said the move would increase iron ore freight by about Rs 10.
Meanwhile, iron ore traffic booked to the sidings and good sheds serving ports but to be sold in the domestic market will now attract a congestion surcharge of 30% according to the railway circular.
Further, the congestion surcharge will now be effectively levied all the year round, from April 15 2008 to March 31, 2009 according to the directive.
In a separate circular, the railway ministry has also put iron ores into a higher freight classification of Class 180 from the current Class 170, which would increase its transportation costs by 3% to 4%. This will come into effect from April 1, 2008. The move which would increase iron ore transportation costs by about Rs 5 per tonne comes only two months after railways had done a similar reclassification of all types of iron ore into the higher 170 freight class. The hike in transportation costs would certainly be passed on to consumers. Railway ministry sources said the decision was taken mainly due to very high congestion on these routes. The move would also fuel inflation further, which has risen mainly due to a sharp increase in prices of commodities and manufacturing inputs.
