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ASSOCHAM & ISA Seek Iron Ore Security For Steel Sector Print E-mail
Written by Hari   
Wednesday, 20 February 2008
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Indian Steel Alliance (ISA) have jointly called for iron ore security and raw material availability for the steel sector as between September 2007 and January 2008, there has been an unprecedented surge in major inputs going into production of steel.

In a statement issued here, ASSOCHAM President, Mr. Venugopal N. Dhoot and  Mr. Moosa Raza President, ISA  said that iron ore which was fetching USD 60 in March 2007 climbed to USD 150 in December 2007 – a rise of 150% in nine months.  The last quarter of 2007 saw a sharp rise of USD 50 in the iron ore prices.  China’s insatiable hunger for Indian iron ore has been the major factor in this stupendous rise.

Even the public sector mining company, The National Mineral Development Corporation (NMDC), increased its prices by over 47%, and that too with retrospective effect from 1st October 2007.  All the steel manufacturers who have long term agreements with NMDC have been adversely affected.  They have to absorb the cost impact.

The prognosis for long term prices of iron ore too is not very favourable. Economists are predicting an increase of 50 – 70% even in the LTA prices during 2008. Spot prices are unpredictable.

If one looks at the coking coal prices, the price increases have been even more appalling.  In the last quarter of 2007 alone, the price went up from USD 160 to USD 220, an increase of 37%.  In the 9 months from April 2007 to January 2008, the prices rose from USD 96 to USD 220.  Coking coal price increase alone has increased the cost of production of steel by about Rs.2,000 per tonne!

The situation with reference to Coke prices is almost incredible.  Prices that were ruling at USD 280 in April 2007 increased steeply to USD 500 per tonne in a short span of 8 months – an increase of 125%.  China, the major source of coke has imposed an export tax on coke to help the domestic steel industry.

15% of the steel produced in India is through the induction and electric furnace route.  Steel scrap is the main input for this.  Scrap prices have gone up by almost 36% in the quarter ending December 2007, impacting the cost of production in this segment significantly. Other inputs into steel making too have not escaped price escalation.  Ferro manganese has registered an increase of 40% in the last quarter of 2007 – from Rs.51,000 to Rs.71,000 per tonne.  Silico manganese price increased from Rs.43,000 to Rs.62,000 – registering a rise of 40%.  Impact in steel cost is around USD20.

At a time when entrepreneurs are going in for both brown field and green field expansions and steel sector is attracting the largest amount of investment in India, it would be difficult for the steel manufacturers to absorb all the cost escalation in the raw materials.  The need of the hour is to enable the industry to expand and produce more by assuring them of iron ore security and raw material availability. This is the best way of bringing down prices.

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