Indian steel manufactures are likely to increase the steel prices up to nearly Rs 1000 ($20) per metric ton in the next few months, reports Business Line. According to the report, the new price increase is because the steel producers plan to pass on the rising costs due to rail freight hike to the consumers.
Indian Railways has hiked the average freight costs for key commodities like coal, grains, fertilizers and iron ore on March 7. Railways increased the freight rate across all commodities — however, it had reduced the freight rate for iron ore exports by 16 percent, while domestic consumption increased 20 percent.
Steel producers are already under pressure with the increase of raw material input costs, such as iron ore and coal.
Last August, the Supreme Court of India banned all mining activities in Bellary and Tumkur in Karnataka after the Central Empowerment Committee reported that mining had caused severe environmental damage in the region. The ban on mining iron ore in Karnataka and Goa has impacted supply of the key raw material and steel producers came under pressure to increase their product costs.
Secondly, coal, being a basic fuel for steel mills, has also created problems for steel producers. Coal supply shortages on the domestic front had forced the steel producers to import coal from Australia, Brazil and Indonesia. Most Indian steel producers were purchasing coal from Indonesia, but a new coal policy in Indonesia had increased the coal rates in that country after last September.
The Business Line report quoted A.S. Firoz, chief economist at the Joint Plant Committee of the Steel Ministry, as saying that the freight hike will obviously have an impact on steel companies.
Currently, the government plans to increase steel production from 72 million tons in 2011 to 200 million tons by 2020, to narrow the gap between supply and demand. However, access to coking coal will be the key to the success of this strategy.
According to the World Steel Association (WSA), in 2011 the world crude steel production reached 1527 million tons and showed a growth of 6.8 percent over 2010. China remained the world’s largest crude steel producer in 2011 (695.5 million tons) followed by Japan (107.6 million tons) and the US (86.2 million tons). India is fourth (72.2 million tons) for the second consecutive year, according to the WSA.
The WSA projected that in 2012, steel growth will be largely driven by China and India, with China’s apparent steel use in 2011 and 2012 expected to increase by 7.5 percent and 6 percent, respectively. For India, growth in apparent steel use is expected to go up by 7.9 percent in 2012. Per capita finished steel consumption is estimated at 206 kilograms worldwide, with 427 kilograms per capita in China.
Analysts say that while steel demand will continue to grow in traditional sectors such as infrastructure, construction, housing, automotive, steel tubes and pipes, consumer durables, packaging, and ground transportation, specialized steel will be increasingly used in high-tech engineering industries such as power generation, petrochemicals, fertilizers, etc.
RNCOS, a leading market research and information analysis firm, revealed in a research report “Indian Steel Industry Outlook to 2012” that Indian crude steel production will grow at a CAGR of around 10 percent during 2010-2013.
TC Malhotra contributes to MetalMiner from New Delhi.