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Steel prices are likely to firm up by another Rs 500-Rs 1,000 a tonne in the next few months. This is because the steel producers, who are already reeling under the impact of high input costs, plan to pass on the costs arising due to rail freight hike to the consumers.
On Tuesday, the Railways hiked the average freight costs for commodities including iron ore and coal, the key raw materials for steel companies. The cost escalation due to such hike would vary for each company and depends on the location from where they source their raw material. However, the Railways claimed that consumer prices would be impacted by 1.4-1.5 per cent.
“The freight hike will obviously have an impact on steel companies,” said Dr A.S. Firoz, Chief Economist at the Joint Plant Committee of the Steel Ministry. Companies, which have captive iron ore and coal mines were likely to be less affected, while those which source the raw material from merchant miners may have to bear the impact. Steel firms rely on the Railways to a large extent to move materials and finished products.
Industry analysts peg the cost escalation at around 1 to 2 per cent of the production cost for steel companies. “Overall, it is not a big thing for steel companies,” said Mr Bhavesh Chauhan, analyst at Angel Broking Ltd. However, companies like JSW Steel Ltd and Monnet Ispat Ltd, which have been witnessing a margin pressure plan to pass on the burden to consumer. But, the market leader SAIL plans to absorb the costs. “We plan to pass to pass on the rise in freight costs to the consumers,” a JSW Steel spokesperson said.
JSW Steel estimates an increase of 19-33 per cent rise in its transportation costs. However, JSW Steel is yet to quantify the price hike it planned to implement.
An official at SAIL said the company will absorb the hike in freight costs on the input side. However, as SAIL sells its products at ex-factory prices, the transportation costs are borne by the consumers, he added.
Stating that high freight charges will exert pressure on the profit margins, Mr Sandeep Jajodia, Executive Vice-Chairman and MD, Monnet Ispat, said “there is no choice, but to pass on the incremental costs to consumers”.
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