Nothing worries the steel manufacturer more than being unable to pass on the rising input costs fully, and putting margins under pressure. This is expected to be the case for steel players in the next quarter, which would see coking coal prices hit a record high due to supply woes, and Indian steel players anticipate a cost push of 15-20%, sequentially.
According to reports, Anglo American, one of the top coking coal miners, has settled contracts for April-June delivery at $330 a tonne with Nippon Steel Corp, resulting in further inflationary pressures in the steel sector. This, according to industry players, is a whopping jump of 47% from the first quarter (January to March) at $225 a tonne, and above the previous record of $300 a tonne in 2008. At the same time, with $150 per tonne currently, iron ore prices are also expected to rise by 20-25% in the next quarter. Steel majors like Tata Steel, JSW Steel and Essar Steel, among others, are anticipating a cost push of 15-20% in the April- June quarter of FY2012. Last week, Tata Steel?s group director (procurement) Kees Gerretse reportedly said, the company?s expenses on key raw materials are likely to go up by $1 billion in the current fiscal to $7 billion, due to a rise in input costs. ?The costs on inputs is expected to further escalate by around 15 % next fiscal over 2010-11 levels,? Gerretse added.
According to Jayant Acharya, director-commercial and marketing, JSW Steel said, ?We have no official confirmation from Anglo on the price yet, but if this is the price, it’s hiked.?
Not speculating on the numbers, Acharya said, ?Considering the consumption of coking coal and iron ore, the price should be rational rather than being opportunistic. The demand recovery has been better than expected in some parts of the world. US and Japan have come back and India is doing quite good. However, going ahead, we are only concerned about the current scenario on the raw material prices that is coming up,? he added. Seshagiri Rao, joint MD and Group CFO, JSW Steel, had earlier hinted of steel prices moving up with hike in raw material prices in the next quarter, as it will increase the cost of production by $120-150 per tonne for non integrated players.
Steel players have rolled on the prices in March on the back of low demand after a hike of R1,200-1,700 per tonne in January and about R500 per tonne in February. Steel makers across the globe have increased prices on the back of rising raw material prices of coking coal and iron ore in particular-after supply was disrupted due to floods in Queensland, northeast Australia, the world’s top exporter of the commodity.
?We expect coking coal prices to move up by 50% and iron ore prices by 25% sequentially, increasing the cost of production by $150-160 per tonne. However passing on the prices will depend on the domestic demand and international prices at that particular time,? said a steel major, requesting anonimity. However, steel players are also hoping that the raw material prices may come down, as such high prices are not sustainable for long time.