Albeit, it is in news that Modi government’s verdict for Rail freight hike likely to raise steel cost in near future, Steel-360 accessed that it will not impact steel prices on certain facts.
On Modi government’s verdict to raise the passenger fares by 14.2% and freight charges by 6.5% w.e.f 25 Jun, 2014, it is heard in media that this freight hike may boost the steel prices in near future. However, Steel-360 has accessed that it will not affect steel prices as this hike will increase the production cost to little extent but it will not give a chance to the manufacturers for price hike.
We at Steel 360 did a distance based study of movement of material via railways. It is interesting to notice that the effect of hike in the taxes will be moderated by location advantage. Based on the available set ups, downstream processing of material will occur in near vicinity hence, the tax hike will not show its effect. Based on our assessment, total impact of Iron ore & Coal will not be more than INR 150/MT whereas for the finish steel the impact will not be more than INR 120-300/MT for steelmaking.
A large scale manufacturer based at Raipur, Chhattisgarh stated to SteelMint, “Total increase in freight cost of Iron ore would be around INR 60-70/MT and Coal would be around INR 30-40/MT. Net increase in production cost is around INR 150/MT, which is a nominal hike and cannot be considered as base for price rise. Prices will be driven by demand & supply.”
While, Sponge iron & Billet traders based in Punjab mentioned that transportation cost would be less than INR 200/MT in case the material is transported from Odisha or Bengal.
Indian Railways is incurring a loss of over INR 9 billion per month in the passenger segment owing to which the government has taken step to increase freight charges as to raise an additional fund of INR 80 billion in the current fiscal year.