SAIL, JSPL and Tata Steel to benefit most from rise in iron ore prices

 Source:ML:Amritha Pillay:April 26, 2010 02:28 PM

With captive mines under their belts, SAIL, JSPL and Tata Steel could emerge as the biggest winners due to rising iron ore prices. These companies are well placed to cash in on the subsequent rise in steel prices, while their raw material costs will remain comparatively on the lower side

With iron ore prices skyrocketing, steel companies like Steel Authority of India (SAIL), Jindal Steel and Power ltd (JSPL) and Tata Steel are likely to make the most of the situation.

All three companies have access to assured iron ore supplies from their own private mines. Unlike others, these companies are not dependent on external iron ore purchases.

Last week, we had reported on how iron prices in the spot market had increased due to low supply from Indian mines. Softening of iron ore prices looks unlikely as supply bottlenecks continue to haunt Indian mining activities. Iron ore prices have touched a high of $192 per tonne, moving closer to the all-time high of $200 per tonne reached in 2008. Industry sources expect a further increase of 10% to 20%.

Amid such a scenario, SAIL, JSPL and Tata Steel are expected to emerge as the biggest winners. According to a PTI report published last week, steel companies like Tata Steel, SAIL and JSW Steel have increased the prices of their products by about Rs6,000 a tonne since February 2010. This increase for Tata Steel and SAIL will go straight to their respective bottom-lines.

Among the smaller steel companies, Prakash Industries and Ispat industries are expected to benefit. Both these companies don’t have access to their own iron ore mines, but have reportedly enough raw material supply through long-term contracts. However, there are concerns on whether Prakash Industries will be able to use its long-term deals to its advantage.

SAIL, JSPL and Tata Steel will be able to jack up their selling prices, and will enjoy greater margins, thanks to lower input costs.

Last week, steel secretary Atul Chaturvedi had indicated that further fluctuation in steel prices was likely. “Steel prices could rise or fall by Rs2,000-Rs2,500 a tonne mainly due to fluctuation in prices of raw material in the next six months,” Mr Chaturvedi was quoted as saying. On an average, any change in iron ore prices could lead to a doubling of steel prices.

Mittal predicts 21% jump in steel prices

 Source:Moneylife ,April 02, 2010 03:02 PM
ArcelorMittal’s CEO forecasts a drastic increase in prices for benchmark hot-rolled coil

Lakshmi Mittal, chief executive officer of ArcelorMittal, the world's biggest steelmaker, has stoked a row over how global prices are set by telling consumers that raw material costs may push steel rates up by 21%.

"The cost of producing steel is going to go up and will be passed on to customers," Mr Mittal said in an interview, reports PTI.

Benchmark European hot-rolled coil prices will rise by $150 a metric tonne in the second quarter, he said. Steelmakers are passing on costs after Vale SA, the largest iron-ore producer, scrapped a four-decade system of annual price-setting and boosted prices for Japanese steelmakers as much as 90%.
Carmakers, the biggest users of steel, are crying foul.

The European Automobile Manufacturers' Association, which represents companies, including Volkswagen AG, PSA Peugeot Citroen and Fiat SpA, said that members want EU regulators to “tackle distortive developments” caused by the changes from mining companies.

“The necessity to increase prices is generating the ire of customers and a bitter battle is raging,” said Christian Georges, an analyst at Olivetree Securities who has tracked industry and resources for 15 years.
Mr Mittal's forecast for benchmark hot-rolled coil would mark a 21% jump from levels now of about $700 a tonne, based on Metal Bulletin data. The coiled steel is used by firms from Toyota Motor Corp, the world’s biggest carmaker, to Royal Philips Electronics NV, the largest lighting company.

Eurofer, a group representing steelmakers in Europe, accused the biggest iron ore suppliers of “illicit coordination of prices” and said it had notified the regulatory arm of the European Commission about possible anti-competitive practices. It said that a shift to shorter contracts for iron ore at higher rates may boost costs for their customers by as much as a third.

“Steel producers will have to pass these rises on to the consumers,” Eurofer director-general Gordon Moffat said in a phone interview. “It's going to create a great deal more volatility in prices.”