Tata Steel Seeks Quarterly Prices as Material Suppliers Switch Contracts
Tata Steel Ltd., India’s largest producer, is in talks with buyers to replace annual with quarterly price contracts, following similar moves by raw material suppliers.
Agreements have yet to be reached as customers will struggle to price their products if steel prices are adjusted every quarter, Managing Director H. M. Nerurkar said yesterday in an interview at the World Economic Forum in Ho Chi Minh City. He did not elaborate.
Steelmakers are adjusting to a shift in the pricing of iron ore and coking coal after Vale SA, BHP Billiton Ltd. and rival mining companies abandoned a 40-year tradition of annual prices. ArcelorMittal Chief Executive Officer Lakshmi Mittal said last month the world’s largest steelmaker is trying to negotiate quarterly prices with customers.
“Tata Steel should be able to convince customers for three-month contracts, if big players like ArcelorMittal go for quarterly pricing as well,” said Nikhil Agarwal, an analyst with a “buy” rating for Tata Steel shares at Kim Eng Securities India Ltd. “If successful, the company’s European unit Corus will gain the most as it depends on outside sources for its raw-material requirements.”
Tata Steel shares fell 4.8 percent to 462.15 rupees at the close of trading in Mumbai. The benchmark Sensitive Index of the Bombay Stock Exchange declined 2 percent.
“Previously we spent a lot of time on pricing during the beginning of the year and the rest of the time we would concentrate on product quality and service,” Nerurkar said. “All this is going to change.”
Nippon Steel Corp. may agree with Toyota Motor Corp. to set prices every six months, the Nikkei newspaper reported on May 19.
The World Steel Association said April 20 that global steel consumption will grow 10.7 percent in 2010. Steelmakers have to raise prices to pass on costs, the association said on May 10.