Steel Analysis

The crude iron costs around the world are increasing. The main reason for this is the increase in the freight cost of these goods. The laded cost for the crude iron in India is around $200 per ton for the crude that is coming from Brazil and FOB is around $150. The freight costs for China is also very high reaching levels of around $180 laded cost for a ton of crude iron.

What does this high crude iron cost mean for the producers of steel? Crude iron being a significant raw material input for the steel producers would mean that the prices of steel must rise to meet the increase in the prices of crude iron. If this is not the case then the producer of steel would see a reduction in the margin that they generate.

According to Essar steel the prices of steel have not gone up significantly in the last one year but still their margins have not taken a huge hit. The prices for the crude iron have doubled but the steel prices have gone up only by around 16%. Essar is attributing the healthy margins that they are generating to the captive mines facility that they are having. This means that the captive mines that the steel companies are after does gives the companies a lot of stability in margins. No wonder why steel companies are running after the iron ores in India.