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Suresh P. Iyengar

Mumbai, March 10

Steel prices are set to rise further with the recent 55 per cent jump in benchmark international coking prices.

In the last two months, steelmakers have hiked prices twice by about Rs 600 a tonne to pass on the incremental production cost to end users.

Japanese steel major JFE Steel had signed a coking coal contract at $200 a tonne for supply between April and June as against $129 a tonne in the same period last year.

Quarterly contracts

For the first time in last few years, mining companies have pushed in for a quarterly contract pricing, which indicates that the benchmark prices could be reset higher and can have greater linkage with spot market prices, said a steel company executive.

With the prospect of demand improving in the coming days, steel companies would be able to pass on the incremental cost to consumers, he said. A Delhi-based trader said as such steel prices were already quoted at a premium over the manufacturers' list price as the market was looking forward to further price rise in the days ahead.

Global mining major BHP Billiton has been persuading steel manufacturers to consider contracts of shorter tenure for both coking coal and iron ore. It has given different price options ranging from quarterly to a combination of annual and quarterly contracts.

Given that global steel demand is expected to improve from the current levels, raw material prices too will be on an upward path. Hence, frequent resetting of prices will favour miners, Ms Chandrani De, research analyst, Ambit Capital.

On an average, global steel prices need to go up by five per cent to counter the recent higher-than-expected coking coal prices. The expectation of good steel demand will largely ensure that the incremental costs are absorbed through further price rises, she added.

Local impact

Though Tata Steel in India is more or less self-sufficient in coal, its subsidiary Tata Steel Europe (Corus) may be impacted by the price hike in coking coal.

The cost of production for SAIL would depend on the hike announced by Coal India as the company sources 30 per cent of its requirement domestically. JSW Steel is mostly dependent on imports.

Most of the steel company stocks on the Bombay Stock Exchange ended in the red on Wednesday. While shares of JSW Steel lost two per cent at Rs 1,170, Tata Steel, Bhushan Steel and Jindal Steel and Power were down marginally at Rs 611, Rs 1,723 and Rs 682.