Steel Authority, Local Rivals May Increase Prices as Demand in India Soars

Steel Authority of India Ltd., the nation’s second-largest producer, and local rivals may increase prices for the fourth time this year because of higher material costs and orders from developers and carmakers.

Prices in India are 40 percent less than the record two years ago, leaving room for gains, Steel Authority of India Chairman S.K. Roongta said in an interview, without giving details. Domestic steel demand is expected to grow at more than 10 percent in the financial year ending March 31, he said.

Tata Steel Ltd., Steel Authority and JSW Steel Ltd., India’s top three producers, increased prices in January, March and April as the government’s push to build more roads, ports and bridges boosted steel sales. Demand is also increasing as automakers, including Volkswagen AG and Ford Motor Co., target buyers in India and China as disposable incomes rise in the world’s two fastest-growing major economies.

“Demand is good right now and there can be a tendency of prices remaining strong,” Roongta said yesterday in an interview in his New Delhi head office. “China will also be a major factor. Demand is good there and if they are not a major net exporter, the prices should remain firm.”

Steel Authority shares, which more than doubled in the past year, rose 2.8 percent to 225.40 rupees at the close of trading today in Mumbai. The benchmark Sensitive Index of the Bombay Stock Exchange gained 0.6 percent.

Rising Consumption

India’s steel consumption last year rose 7.6 percent to 56.32 million metric tons. The central bank estimates the $1.2 trillion economy, Asia’s third-largest, will expand 8 percent this fiscal year.

Steel Authority raised prices by about 4,600 rupees ($103) a ton this year, while JSW Steel, India’s third-largest producer, lifted prices by 14 percent. Market leader Tata Steel increased flat product prices by 10 percent in April.

The price increases have been a cause for concern for Prime Minister Manmohan Singh’s administration as it tries to rein in inflation, which is at a 17-month high. The government is expected to discuss at a meeting today recent price increases by steelmakers, the Press Trust of India reported late yesterday.

Changing Contracts

Prices of iron ore, the key steelmaking material, gained after Vale SA, the world’s largest producer, and BHP Billiton Ltd. last month ended a 40-year system of setting annual prices by signing short-term contracts. The World Steel Association has asked authorities globally to examine the iron ore market after Vale won a 90 percent price increase from Japanese mills. China last week said it was investigating the possibility that BHP, Rio Tinto Group and Vale may be monopolizing supplies of iron ore.

Steel Authority, aiming to almost double output to 23 million tons by 2014, will source all its iron ore needs from its own mines. The company will have to import coking coal, another steelmaking ingredient.

The company is likely to buy as much as 11 million tons of coking coal this fiscal year, Roongta said, without giving details. The company will add 2.5 million tons of steelmaking capacity by June 2011 at Burnpur in West Bengal, he said.

Steel Authority expects to take Kobe Steel Ltd. or Posco as a technology partner to set up a factory at one of its locations, Roongta said. The venture will be in addition to Steel Authority’s existing expansion plans, he said.

Nippon Steel Corp. plans to invest with Tata Steel to make auto-grade steel. JFE Holdings Inc. said in November it will cooperate with Mumbai based JSW Steel, while Sumitomo Metal Industries Ltd. has said it may buy a stake in Bhushan Steel Ltd.’s proposed mill. ArcelorMittal, the world’s largest producer, in February said it has bought a 34.42 percent stake in Uttam Galva Steels Ltd.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net.

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