The government on Thursday decided to set up a committee to monitor movements in steel and raw material prices, indicating a tough stance on an issue that has taken centrestage with inflation touching a worrisome level. Manufacturers, however, said prices of steel would unlikely fall as they had fewer options than passing on the rising costs of raw materials, such as iron ore and coke, to consumers.
“I have asked the ministry to examine the ratio in which the price of raw materials and steel is rising," Steel Minister Ram Vilas Paswan said. "If they are proportionate then the price rise is fair. But if the price of steel has risen more than that of raw materials then the steel companies should reduce prices.”
JSW Steel, Uttam Galva Steels, Ispat Industries have already raised prices by 15 to20 per cent.
Steel companies claim they have been paying much more for iron ore and coke, because their prices in the global market have surged several times over the past year. The spike has been driven by China, where the economy is growing close to 10 per cent and demand for steel has got an extra boost from Olympic games-related constructions.
"The long-term contract prices for international coking coal have increased by more than 200 per cent, while iron ore prices are being revised in a month. This may force us to hike the prices again," said a senior official at a major steel firm. "If National Mineral Development Corporation (NMDC) increases the long term contracts, iron ore prices will again climb up," said the official, who didn't wish to be named.
When contacted NMDC Chairman Rana Som said long term international contracts would be revised by the end of next month, the extent of the hike could be around 65 percent. But that would include the 35 per cent interim hike announced in October.
Som said the problem with the steel companies was that they were paying much more in the spot, where iron ore prices were as high as $190 per tonne. Under the long-term contracts, steel makers are currently paying $75 per tonne, he said. Som said, more than iron ore prices, steel have been hit hard by cost of coke, which has increased 300 per cent.
The government on Thursday rejected the argument by steel makers that deficient domestic supply of iron ore were responsible for high prices of the finished product.
“The country has enough iron ore to last for 200 years. The steelmakers should adopt technologies to be able to use low-grade iron ore. If you come up with right technologies then you could conserve ore in right perspective,” Mines Secretary JP Singh said.
Domestic steel consumption is growing at the rate of 12.6 per cent, which is almost double to the 6.6 per cent growth in supply (during April-December period). The domestic supply deficit will be in the region of 6.5 million tonne, which will have to be imported.
The government is mulling a fresh set of fiscal measures including a possible reduction in import duty of steel and suspension of futures trading in iron to tame rising price line. A proposal to suspend futures trading in iron and steel is also being examined.
Analysts said the government action would remain an overhang on steel company valuations. According to analysts, the steel companies are under margin pressure.
"We are witnessing 50 per cent to 300 per cent increase in various raw material prices. This will have a negative impact on steel manufacturers' balance sheet. Margins of non-integrated players are under pressure even now," said Pawan Burde, metal analyst, Angel Broking.