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Steel prices to rise sharply from August

By Ishita Ayan Dutt in Kolkata
June 25, 2008 10:22 IST
Led by the record increase in benchmark iron ore prices, steel rates are set to climb steeply from August, immediately after the three-month period during which steel producers had promised the government to hold prices gets over.

Baosteel, China's largest steel producer, on Tuesday agreed to pay 96.5 per cent more for iron ore to Anglo-Australian miner, Rio Tinto. The deal overshadows the earlier one struck between Brazilian miner Vale and Chinese steel producers for a 65-71 per cent increase.

This, experts said, reflects the strong demand for iron ore in world markets, especially China, and will set the tone for prices in the domestic market for steelmakers without captive mines. India is a net exporter of iron ore and prices in the spot market are in sync with global prices.

At the moment, steel makers are unwilling to say what will be the rise in steel prices, though they all admit it will be sharp. This could be a new headache for the Centre, which is now grappling with double-digit inflation. Steel products have a weight of 3.63 per cent in the wholesale price index.

While state-owned Steel Authority of India and Tata Steel meet 100 per cent of their iron ore requirements from their own mines, several large producers like Essar Steel, Ispat Industries, JSW Steel and Rashtriya Ispat Nigam Ltd buy from the market. Consequently, their expenditure on iron ore is set to climb.

A large part
of their demand is met by public sector National Mineral Develoment Corporation which has mines in Chhattisgarh and Karnataka and exports iron ore to steel mills in Japan and to Posco in South Korea.

NMDC Chairman and Managing Director Rana Som said his company would ask for a better price from the Japanese steel mills for its iron ore. The date for the negotiations is yet to be fixed.

"This year, Rio Tinto has extracted a better deal from Baosteel. Our prices would depend on whether the Japanese steel mills agree to this increase. Once these negotiations are over, we will decide on domestic prices," he added.

A primary steel producer disclosed that NMDC had indicated that iron ore prices would be changed with retrospective effect from April 1. "If NMDC increases domestic prices before August, we may increase prices before August," he said.

JSW Steel Director (Finance) Seshagiri Rao said that though the steel market in the July-September quarter is sluggish, the prices are up this year. He also said that with the self-imposed ban on raising prices, international prices of hot-rolled coils have become around $350 per tonne higher than domestic prices.

Some producers also pointed out that coke prices had increased from $610 per tonne in the first week of June, when it was agreed to hold prices, to $670 per tonne now. All this could lead to a sharp rise in steel prices in August.
Ishita Ayan Dutt in Kolkata
Source: source