With the slide in rupee hitting raw material costs, steel companies could be forced to go in for a fresh round of price hike. While most companies remain tightlipped about the timing of a possible price hike, JSW Steel, the country's largest private sector player said it will raise prices of steel by 5% beginning September 1, 2013.

 

"With our coal import bill going up by nearly Rs 1,500 crore, we have no choice but to raise prices anywhere between 4% and 6% from next month. Our cost of production has been going up due to higher cost of raw materials, especially coal, and the rupee depreciation has made it difficult to absorb the hike," Jayant Acharya, director-marketing, JSW SteelBSE 8.00 % said.

 

An Essar Steel official too admitted a price hike is necessary with cost push factors like gas price dragging down profitability but refused to comment on timing of a price hike. Analysts feel the fall in rupee has been so dramatic that a price hike is inevitable.

 

Since January, the rupee has fallen 16% and since July 1, it has slipped 4.5%. While iron ore prices have jumped from $129.50 to $144 per tonne at present, coal prices have moved up from $125 in end June to around $136/tonne.

 

"A price hike is inevitable. Steel companies have a big case for it since costs have spiralled. The window for price adjustment is very small. Within a matter of three months, every steel company will have to re-adjust prices. However, the cost hike will be passed on in stages. The extent of it will depend on rate of capacity utilisation and proportion of local inputs used by a company," Kameswara Rao, executive director, PwC (for Energy, Utilities & Mining) said.

 

In case of JSW, apart from imported coal, use of low-grade iron ore has dented productivity by almost 20% while adding to cost of production. Apart from the additional cost of beneficiation, the fuel rate has gone up since it has to use more coke.

 

Apart from cost push, steel companies are also pinning their hopes on estimates of improved steel demand in the second half of the year. "We are hopeful of a better second half. Beginning October, we expect higher demand for consumer durable & automobiles in the festive season. A good monsoon will also generate higher rural demand. This has given us reason to be optimistic," Acharya added.