Rail Budget 2013: Rail freight rate hike may push up steel prices by 5-8%

Rail Budget 2013: Rail freight rate hike may push up steel prices by 5-8% New Delhi: Steel prices may go up by 5-8 percent from April due to 5.8 percent increase in rail freight charges on the movement of iron ore as well as finished steel.

The steel industry termed today's Rail Budget 2013-14, which raised freight rates, as "inflationary".

Presented by Railway Minister Pawan Kumar Bansal, the budget proposes to hike freight rates for 12 commodities, including steel, iron ore and coal, in the range of 5.78-5.81 percent from April.

Bansal also said freight rates will be reviewed twice a year and will be linked to changes in fuel cost.

"Not only inflationary, it is also a double blow to us. Freight rates on both, domestic movement of iron ore and on finished steel, have been raised. So, we will be left with no other option but to raise prices," a senior official of a leading Western India based steel company said.

The country's largest steel producer SAIL alone would have a negative impact of Rs 300 crore on revenues, company's Chairman C S Verma said in a statement.

"For SAIL, this is estimated to have a negative implication of Rs 200 crore per annum on inward traffic and around Rs 100 crore per annum, on outbound finished goods traffic," he said.

Verma, however, did not comment on whether the company would go for increase in prices.

Meanwhile, an official of a city-based company said that it is above 10 percent increase on it because iron ore producers will pass on the freight hike, while market conditions are such that none of the steel producers can bear the impact of rail freight hike.

"In the third quarter (ended December 2012), every steel company has shown decline in sales and profits. So our margins are already shrunk. Add to this today's freight hike. It's a double whammy for us and we will have to pass on the burden," the official said, requesting anonymity.

Similarly, officials of other steel makers said that price hike will be "in the range of 5-8 percent". They added, however, that it will also depend on the impact of general Budget, slated to be presented on Thursday.

Essar Steel's CEO and MD Dilip Oommen said: "Increase in freight will not only push up steel prices, it will add to inflationary pressure" and the railways runs the risk of losing market share to roads.

The Railway Budget for 2013-14 has proposed a hike of 5.79 percent in the freight rate for iron and steel at Rs 1,541.50 per tonne. For domestic movement of iron ore, it is proposed to be raised by 5.78 percent at Rs 664 per tonne, while for pig iron it will increased by 5.80 percent to Rs 773.10 per tonne.

The Railways is estimated to earn Rs 5,672.57 crore from movement of pig iron and finished steel in 2013-14, up 7.51 percent. From iron ore, it is expecting a growth of 3.77 percent in revenues at Rs 8,214.20 crore.

Meanwhile, SAIL chairman said the last mile connectivity planned for some ports and mines will help the steel industry improve its competitiveness.

Noting that the thrust of the rail budget is on new projects including dedicated freight corridor and new coach manufacturing plants, Verma said that these moves "will definitely boost steel consumption as the railways is one of the largest consumers of steel in the country".

"The increased investment by Indian Railways will spur steel consumption at a time when large capacities for steel are being installed by SAIL," he added.

However, Essar Steel's Oomen said the budget lacked an insight to improve railway revenues as there was no clear roadmap to augment capacity and infrastructure.

"There is no clear mapping as to how the private investment will be utilised for some of the PPP projects announced... Overall, there is hardly any initiative in the Budget that could bring a smile on the faces of either the passengers or the industry," he said.

However, he welcomed the move to improve connectivity to mines.

PTI