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Steel makers may find it hard to hold price line

business Updated: May 16, 2008 20:59 IST
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Steel makers may find it difficult to hold the price line beyond July in the face of a sharp escalation in prices of key raw materials such as coking coal and iron ore, top industry officials said on Friday.

Earlier this month, steel producers agreed to refrain from increasing prices for three months in a bid to help the government rein in inflation that is inching closer to a rate of 8 per cent. But fresh contracts that they have to sign for procuring coking coal and iron ore are not coming cheap.

Chairman of state-owned Steel Authority of India Ltd, SK Roongta, his company expects a 200 per cent price increase in long term contracts for coking coal.

“Despite the fact that we have captive iron ore reserves, the cost pressure is the steepest that the industry has ever witnessed. We are currently negotiating our annual coke contracts which should be finalised by the end of this month. As opposed to $ 96-97 per tonne coal last year, prices will be around $ 300 per tonne this year,” Roongta said.

SAIL's annual requirement of coal is around 16-17 mt out of which 4 mt is accounted for through domestic suppliers while the bulk 12-13 mt will be imported. "We remain committed to holding our price line till July but the cost of coking coal for us inclusive of freight will see an increment of around Rs 8-9000 per tonne. In the longer term some of it will have to be passed on," Roongta added.

Companies without much captive linkages like Jindal South West, Jindal Steel and Power Ltd, Essar and Ispat are likely to face an even trickier position after July. "In line with the rise in iron ore and coal prices internationally, our input costs have and are going up exponentially as well," said A JSW official, who didn't want to be named. "We are absorbing all costs till July but beyond that it will be very difficult to manage and we have limited options," he said.

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