Sajjan Jindal-led JSW Steel plans to introduce a differential pricing mechanism that will capture the price fluctuation in coking coal. The steel industry is seeing an exceptional situation with coking coal prices going up by almost $20 per tonne a day and has moved from $110 to $400 a tonne. Steel companies, which sign monthly contracts with original equipment manufacturers, find it difficult to pass on the incremental cost to end consumers.
Seshagiri Rao, Joint Managing Director, JSW Steel told BusinessLine that the company has been studying how metal companies are managing similar situation globally and observed that steel prices are generally linked to scrap prices.
Energy surcharge
With the energy prices going up, one of the European steel companies had introduced an energy surcharge of €50 a tonne on its products.
Since it is a new concept, JSW Steel is in consultation with customers on how to implement pricing mechanisms including energy surcharge in India. It will be followed till the normalisation in energy cost is restored in the market, Rao said.
While retail steel prices are adjusted on a daily basis, JSW Steel is in talks with the OEMs to implement an energy surcharge. The spike in coking coal prices is due to the re-routing of sourcing by China. Earlier, it used to buy directly from Australia but now it is sourcing from US, Canada and Europe while Australia, in turn, is selling it to Europe and US.
The concern of rising logistics cost is expected to ease out with large-scale vaccination and relaxation of Covid restrictions. This is expected to bring down the turnaround time of ships and limit further rise in freight cost.
“With the demand remaining buoyant, the upward bias of steel prices will remain,” Rao added.
Source : The Hindu Businessline
