Steel companies are set to raise prices by Rs 1,500-2,000 a tonne on the back of rise in coking coal and iron ore prices. The increase will be mostly in flat products. This time, the price revision would be substantially higher than the last time when prices were increased by Rs 500 a tonne in August.

While steel producers like Essar are understood to have announced an increase, others are still negotiating with customers and are likely to follow suit shortly.

"The hike is led by cost push. We have held prices for so long, but now it has to be passed on to the customers. We will finalise by the end of this week, but it will be effective from December 1,” Bhushan Steel finance director, Nittin Johari, said.

After an increase in steel prices globally, domestic prices would be at the same level as landed cost of imports. After the increase, the ruling price of hot rolled coil ( HRC), the benchmark for flat steel products, would be around Rs 34,000 a tonne. Flat steel is mainly used in the automobiles and white goods sectors.

In the past couple of months, prices of coking coal and iron ore have increased by about $10-$20 a tonne. “Iron ore prices had come down to $100 a tonne, but after September it has increased. It is now hovering around $130 a tonne,” a steel producer said.

Though the increase in steel prices indicates that the market is in a position to absorb, reflecting a better demand scenario, it’s unlikely to improve the average capacity utilisation by the industry, which is to the tune of 70-80 per cent.

"The low capacity utilisation is due to scarcity of raw material. It is not due to muted demand, so that will not change,” Johari explained.

Government’s initiative to curb illegal mining has led to a serious shortage of iron ore in the market, with industry estimates suggesting that the production of iron ore could be at about 100 million tonnes, which is just half of last year’s. The demand-supply mismatch has led to an increase in prices that is more than the international level. There is about $30 difference in cost per tonne between international and domestic prices.

This difference in cost has prompted steel producers in the private sector to resort to importing iron ore. Raw material prices, competition from imports was another reason that made a case for hike. Due to rupee depreciation in the last few weeks, imports had turned costlier and the Indian material was slightly cheaper. To an extent that was fine, but when the gap increased, Indian producers grabbed the opportunity to raise prices.

According to Joint Plant Committee figures, during April to October, imports stood at 4.2 million tonnes, an increase of 30 per cent over the same period last year.