Prices
The last few years have witnessed the growing acceptability of Indian
steel in international markets and opening up of the economy has seen a progressive
decrease in import tariffs on steel. These linkages with the global economy mean that
today domestic steel prices are determined on the basis of two main factors
| • |
Input costs |
| • |
International steel prices. |
The current trend in domestic prices of HR Steel and inputs such as
coking coal, iron ore and scrap, is a result of a worldwide increase in prices. This trend
is being driven by the acceleration of economic growth in China and revival of key sectors
across US, Europe and Asia. This has led to a sudden jump in demand for steel across the
globe and consequently for raw material inputs as well. This has led to a shortage of key
inputs resulting in increased prices. A look at price trends of key inputs (Fig. 1) shows
that average input cost has climbed up by as much as 300%. With most major producers in
the country depending on import of inputs for production of HR Steel, current prices are
simply an end result of rising input costs.
Increase in input costs
Input
(US$/T) |
Price in
Dec 2002 |
Price in
Sept 2003 |
Price in
Mar 2004 |
Difference over 2002 |
% increase over 2002 |
Coke |
120.00 |
200.00 |
500 |
380 |
317% |
Melting Scrap |
110.00 |
220.00 |
300 |
190 |
173% |
Pig Iron |
110.00 |
220.00 |
350 |
240 |
218% |
Iron Ore |
28.00 |
48.50 |
110 |
82 |
293% |
| Freight |
9.00 |
28.00 |
40 |
31 |
344% |
| Source: Metal Bulletin and Internal Sources |
Fig.1 |
Inspite of the phenomenal increase in input costs domestic prices of HR
steel are comparable/lower than international prices.
Prices of steel as prevailing in the domestic markets of
important steel producing countries.
| US $/pmt. |
| |
Feb 04 |
Jan-March 03 |
April-June 03 |
July-Sept 03 |
| USA |
515.00 |
350.00 |
332.00 |
345.00 |
| China |
550.00 |
350.00 |
340.00 |
385.00 |
| India-US $/pmt |
507.00 |
348.00 |
358.00 |
370.00 |
The price comparison given above clearly highlights:
| • |
Steel prices in India are in line with those prevailing in the domestic
markets of the major steel producing countries both in the developed and developing
markets. |
| • |
Indian Steel consumers are not at any disadvantage to their counterparts
in the developed and developing markets. |
With respect to price of HR Steel, a look at domestic prices during the
last five years (Fig. 3) clearly points that current prices are realistic and comparable
to prices prevailing in 1997-98.
 |
| Source :Internal |
Fig.3 |
Contrary to popular belief steel does not account for a significant
proportion of costs of end products (Fig.4)
Share of steel in total cost of production of user industries
| Product |
Input steel (kgs) |
Value of steel as % of cost of a product |
Value of steel as % Market price of a
product (Rs) |
| Small Car |
850 |
16 |
7 |
| SUV |
1075 |
15 |
4 |
| Scooter |
45 |
7 |
4 |
| Refrigerator |
15 |
7 |
5 |
| Washing Mach. |
9 |
3 |
3 |
| Almirah |
50 |
N.A. |
16 |
| Source : Tata Steel |
Fig.4 |
A look at profits of a few user companies (for the period Apr – Dec 2003) suggests
that while profitability of user group has ranged between 12% to 233%, it is the steel
industry, which is yet to emerge from the days of recession. |
