Steel companies are likely to dance to the tunes of high raw material prices and opt for several rounds of upward price revisions next fiscal.
Experts say while the watermarks of Australian floods will refuse to dry on coking coal prices, even iron ore prices will stay firm due to Chinese demand.
"If we talk about the calendar year 2010, steel had underperformed other commodities, many of which scaled an all-time high. So, it is going to be the year of steel," said Ramesh Iyer, vice president - product development, National Commodity and Derivatives Exchange Ltd (NCDEX).
In June 2008, steel prices touched a high of Rs38,000 per metric tonne and subsequently went to a low of Rs17,500 per tonne. On an average, the prices stayed at Rs24,000 for the entire period of the calendar year.
"I will not be surprised if prices peak to Rs32,000," he said and added that the average for the calendar year 2011 is expected to be Rs29,000.
Therefore, in a bid to protect their margins, the companies may increase steel prices in steps, throughout the year, to offset the impact.
Coking coal and iron ore are the two main raw materials required in steel manufacturing. Coking coal, after being converted into coke, is poured into a blast furnace, along with iron ore, where it is burnt to produce heat, which melts the iron ore and refines it off its impurities. To produce one tonne of steel, almost 1.6 tonnes of coking coal and 1.8 tonnes of iron ore is required.
Due to the impact of high prices of both the raw materials, companies are expected to be under pressure to either pass on the cost or take a hit on their margins.
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