At a time when the government has asked steel producers to roll back prices, its main producer of iron ore?public sector National Mineral Development Corporation (NMDC)?has sought to increase prices of the key raw material by about 60%. Currently, the company sells iron ore at around $60 a tonne.
Around 1.6 million tonne of iron ore is required to produce 1 mt of steel. NMDC, which falls under the steel ministry, wants to increase the price of iron ore booked through long-term contracts because China has already increased prices by 65%. If the steel ministry allows NMDC to hike its contract rates, steel producers would feel the pinch.
NMDC produces about 30-35 billion tonne of iron ore a year and?barring Steel Authority of India Ltd and Tata Steel which have captive mines?integrated producers like Rashtriya Ispat Nigam Ltd, Essar Steel, JSW and Ispat Industries Ltd source iron ore from the public sector unit.
Though major steel producers buy iron ore through long-term contracts, small producers procure from the spot market. If NMDC hikes contract prices by 60%, spot market prices would jump by 100%, making production costs for small producers even higher.
Steel producers, who recently agreed to roll back prices of construction steel like TMT bars by Rs 2,000 a tonne and galvanised corrugated sheets by Rs 500-1,000 a tonne, told FE that the steel ministry should not permit NMDC to hike prices if producers were to hold prices.
Apart from iron ore, global price negotiations on coking coal, another key raw material, will also take place shortly. Prices are expected to increase by more than 150%. Currently, contract coking coal is priced at $98 a tonne and spot hovers at $300 a tonne. Assuming a 150% increase, the former would soar to $250 a tonne.
Says Pawan Burde, senior research analyst, Angel Broking, ?Even though steel majors have recently reduced prices by about Rs 2,000 a tonne, producers may again hike prices in tune with the global trend. The increase in the cost of coking coal, together with a hike in iron ore prices, means that a further increase in steel prices is inevitable.?
Meanwhile, South Korea based Posco on Monday has reportedly agreed to a more than 200% price increase on some of the coking coal it buys from Australia for fiscal 2008.
