Tata Steel?s Corus operations may face shortage of working capital owing to excessive increase in input costs.

Tata Steel managing director HM Nerurkar said prices of iron ore and coking coal are expected to go up by 80-90% and the increase has been fixed for the first quarter of 2010-2011 in Japan, which makes the benchmark price. The global steel market is likely to become volatile in the coming quarters due to rising costs.

In 30 to 45 days, the effective increase of iron ore prices will range from $65 per tonne to $110 per tonne and coking coal prices from $125 to $220 per tonne. So the requirement of working capital will nearly double, Nerurkar said.

Although Tata Steel?s Indian operation in Jamshedpur is insulated from the price increase of iron ore since it has 100% captive supply, the European operation (Corus) will have to bear the full heat since the entire iron ore requirement there has to be sourced from outside.

In case of coking coal, the Indian operation would be partly insulated from the price increase since the captive supply would meet 45% of the requirement and the remaining 55% has to be imported. But the European operation is fully dependent on imported coking coal, for which, again, it would have to bear the full impact of the price increase, Nerurkar added.

?Our European operation may face a shortage of working capital and we may have to go for higher borrowing,? Nerurkar said.

He said the company hasn?t yet worked out the borrowing requirement but the borrowing plan has to take in the increase in production cost.

However, the increase would be passed on to the consumers and in every quarter there would be a change in steel prices since all contracts ? iron ore, coking coal to steel supply ? have been changed from yearly to quarterly.

?If input costs go up, steel prices will go up, steel prices will come down with the decrease in input cost,? Nerurkar said, hinting at market volatility. But there is still room for a ?demand-supply situation? to control steel prices as the demand globally, leaving China, India and Brazil, has not picked up as yet.

Nerurkar said 70% of steel capacity installed worldwide is currently able to meet the global demand and if global demand doesn?t increase, the capacities would remain idle.

The market would absorb the production of Tata Steel?s Jamshedpur plant, which has already scaled up its capacity from 6.8 million tonne per annum to above 7 mtpa, since it mainly serves the Indian market, where demand growth is 10%. But Corus, which is meant to serve the European market, would lose out because of low demand in Europe.

?We may have to run our 17-mtpa Corus plant at a much lower capacity to maintain our business viability,? an official said. Tatas? capacity utilisation of Corus plant was an average of 64.9% in 2009-2010, he added. ?Margins?, Nerurkar added, ?will be under pressure in the coming quarter.?