Steel companies are set to shortly increase prices by Rs 2,000 a tonne, taking the total increase to Rs 6,000-7,000 a tonne since February.
The increase in cold rolled products would be Rs 2,000 a tonne and of long products, Rs 2,000-3,500 a tonne. “Some of the primary producers have already intimated their customers that the new prices would be effective from March 1, while others are expected to follow suit shortly,” a secondary producer said.
The first round of increase in a long while was initiated on February 4, a day before the government imposed a minimum import price (MIP). On February 5, the government had imposed an MIP of $341-$752 a tonne on certain steel items, with the aim of halting cheaper imports that had landed the industry in dire straits. Between September and February, steel prices had dropped by around Rs 8,000 a tonne, ex-plant. Capacity utilisation had dropped from around 80 per cent to 72 per cent and despite a safeguard duty of 20 per cent.
According to a presentation by the Indian Steel Association to the government, as of September 2015, the sector accounted for 21 per cent of the total number of corporate debt restructuring cases, of an aggregate of Rs 56,000 crore. The sector’s share in total stressed accounts of scheduled commercial banks is 10-11 per cent.
“The MIP has helped the sector. Since it was imposed, new bookings of imports have hardly taken place,” a producer said.
A secondary producer explained that with the duties, the price of a basic product like hot rolled coil if imported would cost close to Rs 40,000 a tonne. The home price is around Rs 30,000 a tonne. Producers are now expecting the focus of the Union Budget on rural and infrastructure sectors to give a fillip to the demand for steel. “The large infrastructure outlay of Rs 2.21 lakh crore as proposed is expected to result in higher steel consumption. Wen hope much of that would be from domestically produced steel,” said Sanak Mishra, secretary general, Indian Steel Association.
The Budget also has some dampeners for the industry. Mishra said the 100 per cent increase in clean energy cess on coal would raise input cost for steel producers. Vishal Agarwal, vice-chairman, VISA Steel, explained that at current coal prices, this cess of Rs 400 equated to approximately 7.5 per cent and with an import duty of 2.5 per cent, the effective tax on import of coking coal becomes 10 per cent.
Coking coal accounts for half the raw material cost and steel producers have to rely mostly on imports, as Indian coal is of poor quality. “Since coking coal is different from thermal coal, it was expected that the clean energy cess would be applicable only on thermal coal,” said Agarwal. Also, the duty-free export of iron ore (below 58 per cent grade) might lead to higher domestic prices. This is also a major raw material for the steel industry, say producers.
Source: Business Standerd