Steel companies to feel the heat
Some of the benefits to Indian steel producers from restrictions on steel imports may disappear due to the rising prices of key raw materials -coking coal, iron ore and other. Shares of Indian steel producers such as Tata Steel, JSW Steel and SAIL, which have rallied strongly since the introduction of minimum import prices (MIP) in February 2016, may come under pressure. Hard coking coal prices per tonne have increased from $100 to $270 in the past three months. Iron ore prices in the international market rose from $50 to $65 and by 15-20% in India in two categories -fine and lump. According to estimates, this may increase the cost per tonne of steel by around Rs 7,000, which may reflect with lag, partially in the December quarter and fully in the March quarter as the contracts are mainly on quarterly basis. This cost inflation is around 15% of the current steel prices and the steel companies may not be able to pass it on, which means margins will be impacted.
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