May 17, 2008

Indian steel industry trapped in input cost spiral – ISA

Indian Steel Alliance has published a an advertisement in public interest highlighting the raw material cost push on Indian steel makers

It said that “Steel is the backbone of any growing economy. Steel industry is deeply concerned with the recent increase in prices globally due to high raw material prices. All commodities like mineral resources, food grains, energy, crude oil, nonferrous metals etc are at an all time high. Steel has only followed the trend in last two months. It is pertinent that the facts are brought out to the discerning public.”

ISA said that “The cost push of all raw materials used for steelmaking have gone up substantially from April 2007 to March 2008”
Iron ore - 2.5 times (Spot)
Coke - 2.9 times
Coking coal - 3.2 times (Spot)
Scrap – 1.5 times
Manganese ore – 3.7 times
Natural gas – 3 times (Spot)
Thermal coal – 3 times (Spot)
Transportation costs including sea, rail and road have almost doubled

ISA said that “The raw material cost push has increased the cost of production by INR 12,000 per tonne to INR 13,000 per tonne since Aril 2007. However, price for hot rolled coil has increased by about INR 6,500 per tonne only.”

ISA added that “TMT is a crucial input for construction and infrastructure. The major producers account for only 18% of the TMT produced in the country. The secondary steel manufacturers, which are the leading TMT have been impacted by high increase in scrap, iron ore and coal prices thereby pushing up the TMT prices.”

ISA also outlined the global trends. It said “Global steel prices have already been increased from around USD 600 per tonne in December 2007 to USD 970 per tonne in March 2008 to cover cost push during the period ie an increase of INR 15,000 per tonne without excise duty and taxes.”

ISA said that the Indian steel industry is closely linked to global trends and can not remain in isolation. It said “Any large gap in prices between Indian and International levels will reduce imports thereby increasing the demand and supply gap.”