Profiteering or Profitability? What domestic steel industry wants from price hike

by Joseph K. Clark

Steel production through the BF-BOF route uses iron ore of 1.65 tonnes and coking coal of around 750 kg per tonne of steel. Steel pricing has continued to occupy a centerpiece in the media for the last few weeks. Various responses and feedback from end-using sectors, policy planners, industry associations are filling up the pages. It is challenging to take a dispassionate view from the producers’ or users’ points of view. Let us look at some of the facts.

Steel prices (HRC as the mother product) went up by Rs 16,700 per tonne from July to December 2020. These prices went down by Rs 3,100 per tonne from January to June 2020. From a longer time perspective, HRC prices during January-December 2019 went down by another Rs 5,500, and therefore, the net increase in HRC prices stands at only Rs 8,100 per tonne.

steel sector

The cyclicity has been very much a part of the steel industry and, for that matter, for any commodity pricing. For many of the finished products made out of steel, the drop in steel prices is not passed on to end customers as the same is taken to compensate the losses incurred by them on previous occasions (steel price rise was one among many other factors) and there are compelling reasons offered by them to justify this action.

Steel production through the BF-BOF route uses iron ore of 1.65 tonnes and coking coal of around 750 kg per tonne of steel. Thus prices of iron ore have a higher impact on the cost of production of steel.

For steel production through EAF/IF route, prices of iron ore impact prices of sponge iron which is the primary raw material for these producers, along with non-coking coal. In the case of coking coal (prime complex low vol), the price rise was minimal, but thermal coal prices went up from $53.46/t in July 2020 to $98.16/t, which influenced domestic non-coking coal prices. Iron ore prices went up by Rs 2,650 per tonne during the July-December period.

In Odisha, the auctioned mines are yet to commence production, and there has been a lower production out of the existing mines in the state. As a result, there is a supply shortage of around 25-28 MT of iron ore in the state. This has indeed adversely affected small and medium steel players dependent on iron ore produced in Odisha. Availability of TMT Bar, wire rods, and partially the structural section availability from these segments was a casualty, leading to a price rise of these items.

The export of raw materials (primarily natural resources) needs to be viewed separately from the export of finished steel items. In earlier years, countries importing iron ore from India exported finished steel made out of it to India. Export of iron ore (legally or illegally mined, fines not being used domestically) has decreased over the years. In the present situation, it is also used in making exported pellets and adding to the problem of temporary shortage. Finished steel exports, HRC in particular, are value-added exports and need not be equated with raw material export. It takes strenuous efforts and adequate branding to create and nurture export markets abroad, and sudden withdrawal from the market is construed as an undependable source and needs a long time to recoup. From April to November 2020, India exported 5.1 MT of HRC and imported 0.43 MT of the product, resulting in a net exporter of 4.6 MT.

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