Steel firms to raise prices after NMDC hikes ore prices

Posted on 04 December 2017

Source: Business Standard

Steel mills in India are likely to raise their product prices by Rs 1,000 a tonne to pass on the iron ore price hike by the government-owned merchant miner NMDC.

Today’s iron ore price rise follows a 16 per cent increase in the international price of the commodity in November. NMDC keeps its prices 15-30 per cent lower than the landed cost of imported ore to remain competitive and even now its prices are 30 per cent lower than the landed cost in eastern India and 15 per cent lower in western India.

Following private miners, primarily in Odisha, NMDC raised its iron ore prices by 10-13 per cent with immediate effective. With this revision, the price of iron ore lumps has gone up by Rs 300 to Rs 2,600 a tonne and that of fines by Rs 200 to Rs 2,260 a tonne. The spike is the highest since July 4, 2016, when NMDC raised ore prices by 20-23 per cent, or Rs 300-400 per tonne.

Steel Authority of India Ltd (SAIL) has convened a meeting to take a decision on steel prices. Sources Essar Steel would also take a call on Monday.

“Such a steep jump in iron ore prices was not expected. The landed cost of steel in India is higher than prevailing steel prices. Hence, the raw material price hike has to reflect in steel prices to ease cost pressures,” said Jayant Acharya, director (commercial), JSW Steel.

“Our officials will meet latest by early next week to take a final call on our product prices,” an executive with SAIL said.

The price of lumps has risen up by 7.2 per cent this financial year and that of fines by 3.4 per cent. During 2016-17, NMDC had raised the prices of lumps and fines prices by 10.7 per cent and 12.1 per cent, respectively.

“Steel mills have already issued guidance about raising product prices by Rs 1,000 a tonne in the December quarter. But steel mills in India face a serious threat from imports in case they raise product prices exorbitantly,” said Gautam Chakraborty, an analyst with Emkay Global. “The iron ore price hike has increased the cost pressure on steel mills, which needs to be passed on to consumers. Steel price hikes of at least Rs 1,000 a tonne are probable next week,” said an executive with a steel mill.

NMDC revises ore prices based on demand from steel mills. Tata Steel and SAIL do not source iron ore from the market and they are unlikely to be affected by the NMDC move.

NMDC saw a fall in its consolidated net profit in 2016-17 to Rs 2,583.03 crore from Rs 2,703.65 crore a year ago. Total income from operations shot up to Rs 8,829.64 crore in 2016-17 from Rs 6,457.27 crore a year ago due to increased production. Total iron ore production by NMDC rose 19 per cent to 34 million tonnes in 2016-17.

The company posted a turnover of Rs 5,263 crore and net profit of Rs 1,814 crore in the first half of 2017-18, up 52 per cent and 22 per cent, respectively.

It has issued a guidance that it will achieve Rs 10,000 crore income from operations by the end of 2017-18. The latest price increase will help NMDC to achieve that target. 

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