Steel majors like Essar Steel, Ispat Industries and Rashtriya Ispat Nigam Ltd, which do not have captive mines, are likely to see an increase in operational costs with Indian Railways increasing freight charges of iron ore.
The higher freightage results from the railways reclassifying iron ore into a more expensive tariff bracket (Classification 170, from the earlier Classification 160). The hike comes into effect from Monday.
The move comes just eight weeks ahead of the Railway Budget. Lumping the rise in the Budget would have been seen as inflationary in a possible election year. It would also mean that transporting iron ore would become dearer by Rs 85 lakh to Rs 10 crore per million tonne (mt).
India produces 180 mt of iron ore and a bulk of its transportation takes place by rail. The higher costs would invariably lead to an increase in steel prices.
Steel companies without captive mines primarily source iron ore from National Mineral Development Corporation (NMDC). The increase in freight charges would not affect the likes of Tata Steel and Steel Authority of India Ltd (Sail), which do have captive mines.
The freight increase comes within a month of an almost doubling of the congestion surcharge on iron ore to 60% by the railways. Moreover, NMDC too recently increased the price of iron ore, both lumps and fines, affecting all steel companies, barring Sail and Tata Steel.
Steel industry sources told FE that decision both by NMDC and the railways would adversely affect the competitiveness of steel producers.