News Room - Steel Industry

Posted on 09 Apr 2008

Steel may cost more as Posco revises raw material prices

The government’s move to regulate steel prices could come to a naught, soon. Prices of coking coal, a major raw material, are likely to surge sharply after Korean steel major Posco on Monday agreed to raise its annual contract prices by about three times. 

Coking coal, which is mainly imported by Indian steel companies, has gone up to $350 per tonne, from the previous price of $133, which would mean an additional cost of about Rs 7,000 per tonne of steel in India.

Although prices of flat steel, those used by consumer goods and car makers, haven’t been raised recently due to pressure from the government, construction grade steel prices were hiked by about Rs 1,000 per tonne in March.

Posco, which is the world’s third-largest steel company and is scheduled to build a 12-million-tonne steel plant in Orissa, on Monday agreed to the sharp rise in coking coal contract prices after concerns that floods in Australia could reduce supplies.

The rise in coking coal contract rates could spur prices of spot rates too, which are currently hovering at about $350 per tonne. While SAIL and Tata Steel buy coking coal through long-term contracts, most other steelmakers, such as JSW Steel, Essar Steel and Ispat Industries, buy through the spot market.

Tata Steel is currently involved in negotiations for its annual coking coal contracts and the sharp rise in Posco’s prices could impact price negotiations, said sources. A Tata Steel spokesperson didn’t comment on this issue.

The raw material is vital for steel making as 1.44 tonne of coking coal is used to make a tonne of coke, that is then burnt in the blast furnace to melt iron ore.

A rising inflation rate, annual wholesale price inflation has soared to its highest in more than three years at 7%, prompted the government to request steelmakers for a softer price regime. Export tax on steel has been levied to increase availability of steel in India, which annually makes about 56 million tonne of steel.

However, the steel industry is likely to wait for some days for benchmark contract iron ore prices before coming out with its pricing decision, according to top executives in steel companies who didn’t want to be named.

While European steelmakers, including ArcelorMittal and Corus, have agreed to a 67.5% hike in ore contract prices, negotiations between Chinese steel mills and BHP Billiton and Rio Tinto are still going on.

“They are expected to be finalised in a couple of days,” said one executive. Going by the 67.5% price rise, Indian steel prices could see an additional rise of Rs 4,000 per tonne, implying a total cost rise of about Rs 11,000 per tonne.