Although state-run Sail and private sector firms Tata Steel, JSW Steel and Ispat Industries Ltd have said they would hold steel prices for the next two to three months, the decision will have a marginal impact on the companies concerned, say experts. However, experts fear that on account of further rise in raw material prices and increasing cost of production, steel makers will find it difficult to hold the prices and there is likely to be a possible price hike of another Rs 5,000 per tonne in the second quarter.
Following Prime Minister Manmohan Singh?s advise on Tuesday to the domestic steel industry to take a long-term view and not seek windfall gains in a period of high demand, Sail and Tata Steel decided to hold prices at current levels for the next 2-3 months. JSW and Ispat, too, on Wednesday offered to keep prices intact for the same period.
?The margins of non-integrated players like JSW Steel are already under pressure. However, after this announcement, margins of integrated players like SAIL and Tata Steel are now expected to either remain flat or might have a slight impact,? said Pawan Burde a senior analyst with Angel Broking.
Talking to FE, MVS Seshagiri Rao, director-finance, JSW Steel said, ?Cost push will continue, and there is no assurance that we will get the full quantity of the contract coking coal and we have to buy coking coal from the spot market. Hence, margins will be impacted.?
Tata Steel and Sail both import coking coal. However, Sail?s current contract for procuring coking coal will expire in July. The same is the case with most of the companies. This means that Sail is currently buying coking coal at the old price ($98 per tonne). Experts believe that once it buys coking coal at new contract prices, a rise in prices of steel is likely. Moreover, the industry repeatedly mentioned that any further hike in raw material prices will be passed on. Iron ore prices have gone up over 67% while contract coal prices have increased from $98 per tonne to more than $300 per tonne in a year. NMDC is also expected to hike iron ore prices to 65%.
