Iron ore prices are headed as much as 35 percent higher this year and will likely pressure the profit margins of steel companies, Tata Steel Ltd TISC.BO Vice Chairman B. Muthuraman said on Tuesday.
“I don’t know where it’s going to settle down, but it does look 25 percent to 30 percent to 35 percent higher”, he said in an interview. It may be possible that the steel prices may not go up by that much.
This means the steel companies will come into margin pressure, he added.
Global steel production had tumbled last year as demand from key industries such as construction and automotive shrank. But as macroeconomic data improves and inventories deplete, demand is expected to build this year.
India’s Tata Steel, which owns its own iron ore and coal supply sources in India, sees steel prices rising but not to the extent of the raw materials.
Steel prices depend on supply and demand, and I don’t see the demand going up so sharply this year, Muthuraman said. So demand not being extremely strong will put a cap on the steel price increase.
Spot market prices for iron ore surged more than two-fold in the last 12 months on strong demand from China and recovery in Europe, and the United States. The price for iron ore remains near $130 a tonne.
Also, global miners are currently in negotiations with the world’s largest steel producers in setting a key annual iron-ore benchmark price, a bulk discount to the spot price.
The iron ore prices are typically set each year following negotiations between big suppliers — Vale, Rio Tinto and BHP Billiton — and large steel mills.
Muthuraman said he expected the negotiations to wrap up in the next two months.