Domestic steel producers without captive mines source most of their iron ore requirement from NMDC and Kudremukh Iron Ore Company (KIOCL) which are expected to bring ore prices at par with international rates effective April 1.
According to reports, Brazil's Vale and Japanese mills have agreed on a 65 per cent increase in prices and Chinese mills are also understood to have accepted it.
Among the major producers, only Steel Authority of India (SAIL), Tata Steel and a part of JSW Steel and Jindal Steel & Power's (JSPL) requirements are sourced from captive mines.
Jatinder Mehra, chief executive officer, Essar Steel, said, "For every tonne of steel, 1.6-1.8 tonnes of iron ore is required and that will be the extent of impact on steel prices."
Essar Steel has no captive mines but Minnesota Steel, which it acquired last year, is said to have reserves of around 1.4 billion tonnes. However, Minnesota is yet to be developed.
Sushil Maroo, director, JSPL said, "Once the new contracts become effective from April, steel prices will be increased." However, he also pointed out that spot prices for fines and lump ore had increased significantly in anticipation over the past year.
From March 2007 to February 2008, KIOCL's long-term pellet prices have increased 89.23 per cent to Rs 7,623 a tonne while NMDC's lump ore has increased 32.3 per cent to Rs 3,188 a tonne and 60 per cent fines to Rs 1,783 a tonne.
Steel sources peg the total cost increase over the past year at Rs 6,000-7,000 a tonne on account of raw material price and freight increases.
Steel companies hiked prices in January by Rs 600-900 a tonne and by Rs 2,500 a tonne in February on an average, but had to settle for a partial rollback of Rs 500 for flat steel. Hot rolled coil prices in February were hovering around Rs 31,000 a tonne while landed imports stood at Rs 33,500 a tonne.
"Even before new long-term iron ore prices come into effect, prices are likely to increase next month," sources said.
"Globally, all major steel companies have announced price hikes and the demand looks strong so the market should be able to absorb a hike," they said.
