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Why are steel prices rising?

Source: PTI
May 30, 2005 15:26 IST
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The rising prices characterising the steel industry have been primarily due to hike in input costs besides increase in demand, a study has found out.

Industry body Assocham in its study, 'The Steel Surge', found that increase in freight costs by 288 per cent over the last couple of years have significantly contributed to the rise in steel prices.

"The fact remains that 3.1 to 3.2 tonnes of raw materials are required to produce a tonne of steel. Domestic prices of hot rolled coils are hovering at Rs 28,500 per tonne, excluding freight, excise and other duties. So the rise in steel prices can be attributed to a hike in input costs," the study pointed out.

Moreover, due to lack of major discoveries of iron ore deposits for a considerable time the raw material had to be imported which again contributed to rise in input costs.

In January, this year iron ore prices shot up by 100 per cent over March 2003. NMDC, the country's largest miner and ore supplier hiked ore prices by 50 per cent to Rs 1,430 per tonne from Rs 960 per tonne to realign its prices with the benchmark international prices which too were recently hiked by 71.5 per cent. Besides, 60 per cent of coke is imported owing to the fact that domestic coke is of high ash content.

It accounted for over 55 per cent of the steel produced through blast furnaces. The average consumption of coking coal is Rs 542 kg per tonne of hot metal. Similarly, price of coke have also shot up by 111 per cent during the past two years, the study said.

While such an increase in iron ore prices would lead to corresponding rise in the price of steel by $16 to 24  per tonne of steel, rise in coking coal prices for the same year would result in a hike of $52 to 67 per tonne of steel.

However, impacts of both these cases excluded the impact of ocean freight, which is likely to remain strong in a demanding market, the study said.

The demand for steel was likely to grow by 7 to 8 per cent over the next ten years. Besides demand from China, new European Union nations too are keen to improve their infrastructural facilities leading to a corresponding growth in demand for steel.

Asia, particularly the Gulf nations, Thailand and South Korea have also grown remarkably. When the world demand grew by 4 to 4.5 per cent in 2003, Asia had cumulatively grown by more than 7 per cent. Hence the demand for steel is likely to grow by 7 to 8 per cent, it said.

The demand for steel is also rising in India due to the development of infrastructure and growth in housing and construction sectors. Besides, the automobile sector grew at a rate of 16 per cent during April to February 2005 as compared to the corresponding period the previous year.

Moreover, the white goods sector was also depicting growth. All these factors have led to an increase in the steel prices, the study pointed out.
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