Raw material cost: Indian steel cos feel the pinch

New Delhi, Nov 13 | Updated: Nov 14 2005, 05:30am hrs
After witnessing good times in the recent past, the Indian steel industry is facing pressure from an increase in the raw material cost which went up by an average of 8.56% year-on-year in the second quarter of this fiscal, an Assocham Eco Pulse (AEP) study said on Sunday.

The study on the steel industry has said this pressure was being felt more by integrated steel majors like Tata Steel, SAIL and Essar Steel, which through their sheer size of operation were more prone to price disturbances in the market. According to the study, soaring prices of coking coal and iron ore had a direct hit on the bottomline of the top 10 steel companies which saw an average net profit decline of 22.12%. While net sales of steel companies increased by a mere 1.64%, net profit decreased by 22.12%, it said.

The revenue was impacted by lower sales realisation as well. Interestingly, China, which has so far remained the worlds largest consumer, has started exporting as well at an aggressive pricing. Steel prices went down during the quarter-ended September, 2005 following cheap imports from China and Ukraine. China, which was earlier importing steel, has turned a net exporter.

Profit margins were under pressure since the firms reduced steel prices in order to lower the inventory level and counter the cheap imports. Apart from the cheap imports, heavy rains during August and September also led to a drop in steel prices since the transportation was affected and the consumption pattern for the housing and infrastructure projects changed, the Assocham study found out.

Integrated steel companies said to be at the receiving end
Study finds the coking coal and iron ore price the main culprit
Revenue also took a hard hit from sales realisation
Raw material cost rose by 8.56% to Rs 6,326.73 crore in Q2, FY06, from Rs 5,827.72 crore in Q2, FY05. The costs of gas, iron ore and iron ore fines went up and the price of indigenous as well as imported coal also soared.