Steel companies feel the heat of input cost rise : Rashtra News
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Tata Steel MD, TV Narendran said, although raw material prices, especially that of coking coal, has started rising, “Tata Steel would realise the best value of its products from the export market at the start of the next fiscal before the increasing raw material prices sets in to escalate input costs”.
Primary steel producers like Tata Steel, JSW, SAIL and others are betting on an immediate margin expansion, especially in the export markets, for a demand- supply gap arising out of the Russia- Ukraine war. But medium and small steel producers have already started facing the heat of escalated input costs prompting them to knock the door of the banks for increasing working capital limit.
Tata Steel MD, TV Narendran said, although raw material prices, especially that of coking coal, has started rising, “Tata Steel would realise the best value of its products from the export market at the start of the next fiscal before the increasing raw material prices sets in to escalate input costs”. But smaller players like Shyam Steel, SRMB Steel, Captain Steel India Ltd, and such others, who generally operate on low inventory, have to fork out immediate cash to pay for increased raw material prices, thereby losing the benefits of higher margins.
Lalit Beriwal, director Shyam Steel, who has embarked on a Rs 800 crore or Rs 8000 million expansion plan said, landed cost of coking coal,in the last 16-17 days, have touched from an average $150 per tonne to an average $ 400 per tonne, up 266%. For plants operating in India, coking coal has to be generally imported from South Africa and Australia. But some were sourcing from Russia after the government last year directed big and small steel producers to divert coal sourcing because of uncertainty in availability there.
India signed an MOU last year with Russia to diversify supplies of coking coal. Talks with Mongolia were also in progress for diverting supplies from South Africa and Australia. ” But non supplies from Russia and Ukraine in the wake of the war has created a vacuum, for which there is once again a rush in these two countries,” Beriwala said.
Narendran said, Tata Steel sources 15% of its coal from Russia but for Indian capacities it usually sources from Australia and for European operations from North America. Though with coal inventories in hand, the company is yet to face the cost push, it is keeping a very close watch over the evolving situation, a Tata Steel official said.
The landed cost of CIL e-auction coal, offered in limited quantity through single window commanded an average16,000/ tonne in the latest rounds of auctions, up from
10,000/ tonne, an increase by 160% from the earlier auction held. Iron ore prices have also been increasing between 10% and 18% in the last one year but there were no constraints in supplies,” Beriwala said.
He said, his company, augmenting capacity of its Mejia integrated steel capacity from present 0.6 million tonne per annum to 0.9 MTPA by March 2023, is on a 10% -12% working capital crunch, “but banks I hope will come forward,” he said, adding the West Bengal government has allotted 600 acres in Purulia to Shyam Steel for setting up an approximate 1 MTPA integrated steel plant. But in such market volatilities project costs tend to go beyond estimates.
“This is true in the case of every infra project, with which the government was aggressive about,” Beriwala said.
Although he didn’t want to divulge on the planned investment in Purulia, the process of obtaining environmental clearance was on as the lease holding was awaited, he said.
Besides coking coal and freight charges making both crude and finished steel prices volatile, metals such as nickel prices were forcing stainless steel producers to bring their businesses under “prudent risk management with a policy to sync sales order and raw material booking on a real time basis,” Abhuddhyah Jindal, managing director, Jindal Stainless (JS) , said, adding the company banked on long term contracts and exports, though product lines were poised to churn out flexible product mix in line with the market demand and raw material availability.
Russia contributing to 6.8% of the world’s total nickel production shouldn’t pose a big problem to our raw material sourcing as we sourced most of our nickel from scraps generated in India, Indonesia and Europe, Jindal said. But most smaller players lacked flexibility of product lines.
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( News Source :Except for the headline, this story has not been edited by Rashtra News staff and is published from a www.financialexpress.com feed.)
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