Steel companies are gearing up for substantial increase in prices with the recent spike in key raw material and logistics costs on the back of the ongoing war in West Asia.

Though steel companies have increased prices of late to offset iron ore and energy cost, the prolonged US attacks on Iran have pushed up the cost of all imported raw material including coking coal, and shipping cost.

The domestic hot rolled coil prices are already up 23 per cent to Rs 54,000-58,000 a tonne against Rs 47,000 a tonne recorded last November, driven by the spike in iron ore and energy costs.

Bhavik Bhagwanji Shah, Research Analyst, Metals & Mining, Choice Institutional Equities, said though prices have risen 15–20 per cent from recent lows, the cost of coking coal and ferro-alloys have climbed at a faster clip, compressing the EBITDA spreads for non-integrated players. 

“We anticipate further hike of Rs 1,000–2,000 a tonne in the coming weeks. However, a sharper rise may face resistance from price-sensitive sectors such as automotive and white goods sectors,” he said.

Stark divide

The ongoing gas and fuel shortages are creating a stark divide in the industry. The MSME steel cluster, which contributes nearly 40 per cent of India’s output are facing an operational crisis. Gas supply cuts of up to 70 per cent in key industrial hubs such as Punjab and Maharashtra have led to reduced shifts and potential shutdown risks.

The gas shortage has already forced many MSME downstream producers down shutters and this will impact demand in the near future, said a steel company official.

Early this month, the Indian Steel Association moved the government over the shortage of propane and liquefied petroleum gas impact on the entire value chain.

JSW Steel noted that disruptions in fuel supplies and maritime operations are beginning to affect its operational stability and supply chain. JSW Steel Coated Products faces the risk of failing to meet its obligations to sell and supply tinplate under a government production-linked incentive scheme and is requesting a six-month extension. The company has received a force majeure notice from one of its key suppliers — Petronet LNG Ltd — which has affected LNG supplies.

Divya Mandaliya, Commodity Research Analyst, Anand Rathi Shares and Stock Brokers, said the recent spike in fuel prices with diesel doubling to $180 a barrel has already pushed mining and logistics costs higher and has directly impacted steel cost curves.

While cost pressures will keep steel prices higher, the macro uncertainty and slowing demand will prevent a sustained bull run keeping the market volatile, she said. 

Source: The Hindu Business Line 

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