Prices in the retail market for hot rolled coil have already gone up by almost Rs2,000 per tonne and analysts believe a price hike from April is imminent on account of excise duty hike and jump in raw material contract prices
Following in the footsteps of other mills, state-owned steel major Steel Authority of India (SAIL) on Wednesday hiked steel prices by up to Rs600 a tonne, effective from 1st March, on account of increase in excise duty.
According to a PTI report, SAIL chairman SK Roongta told reporters on the sidelines of an All India Induction Furnace Association meet that there would be a price increase of about Rs500 to Rs600 a tonne due to the excise duty hike and it would be effective from 1st March.
Partially rolling back the fiscal stimulus in the Budget, the government raised excise duty by 2%-10% across the board. To spur economic activities, the government had earlier initiated massive spending programmes and slashed duties from December 2008 in three stages following the global financial crisis that began in September in the same year.
Indian mills have increased domestic commercial hot rolled coil prices for April production on rising international prices and higher costs of production. Prices have risen by at least Rs1,000-Rs1,500 (about $21-$31) per tonne ex-mill to Rs30,500-Rs32,000 per tonne. Prices for end users are also rising because of an increase in excise duty, which has risen to 10% from 8%. While mills have yet to officially increase the price of cold rolled steel, basic prices, exclusive of taxes, have already risen by Rs1,000-Rs1,500 per tonne to Rs36,000-Rs36,500 per tonne.
The price hike from April is imminent on account of excise duty hike and jump in raw material contract prices for major players across the globe. Both iron ore and coking coal contracts for 2010 are expected at 35%-45% higher levels than last year, and this could push up the cost of production by about $75 per tonne of steel.
"We believe that companies like Tata Steel and SAIL will be the major beneficiaries of the price jump on account of their backward integration. Global steel demand scenario is also improving with strong last quarter growth in US and Japan. Overall, we remain bullish on the steel sector as a whole and we could see further hike in the next quarter," said Kisan Ratilal Choksey Shares and Securities Pvt Ltd in a research note.
On the demand side, improvement is being seen in developed economies particularly in the flat segment on account of pick up in automobile sales. However, long product demand still remains subdued as no major revival is seen in construction activities which are the major consumer of longs.
Enam Securities Pvt Ltd said, "We believe higher raw material spot prices could lead to an annual rise in FY11 contract prices (negotiations going on), which will support steel prices. However, we believe credit tightening in China is likely to put a brake on the substantial price hike in raw materials as well as steel.”
Echoing the same view, steel secretary Atul Chaturvedi also said that steel prices were set to go up. "They (steel prices) will go up now. You have to decide between inflation and recession. Companies have to earn money and this can be done either if raw material prices go down or steel prices go up," Mr Chaturvedi said.
When asked if the price rise was alarming, he said, "If we see steel prices in the last 30 months, the current scenario is not alarming."
Last week, BHP Billiton in its coking coal contract negotiations with Japanese steel makers pushed the April-June 2010 contract price by almost 55% over last year to $200 per tonne. This was a major shift for BHP from the earlier annual contract system to a quarterly system. But Japanese steel makers rejected the offer.
Similarly, huge disparity between spot and long-term contract prices is prompting large iron ore miners to shift away from annual contracts to shorter duration contracts.
With the delay in contractual negotiations, steel prices are likely to remain at higher levels in the near term.