Business Standard reported that the proposed 6.5% hike in railway freight rate has made steel products costlier by INR 300 a tonne in major spot mandis across the country and traders are mulling a further increase to the tune of INR 700 tonnes to 1,000 a tonne next week.

Ingot price in the benchmark Mandi Gobindgarh market, India's largest spot steel selling market yard, shot up by INR 300 to INR 39,750 a tonne on Saturday compared with INR 39,450 a tonne the previous day. Melting scrap, the valued raw material for steel making that substitutes iron ore in electric arc furnace, has shot up to trade at INR 31,200 a tonne on Saturday compared with INR 30,900 a tonne the previous day.

In line with the spot market, primary steel producers are also looking at the possibility of a price hike in the coming days to pass increased transportation cost to consumers. The industry is mulling a INR 1,000 to 1500 a tonne of increase in steel prices in coming days.

Mr Seshagiri Rao Joint MD and Group CFO of JSW Steel said that "We are working on the impact. Definitely the cost of steel production will go up on freight rate hike with the increase in iron ore transportation cost. But hike in steel prices depends upon several other factors of which railway freight is just one."

Mr Anil Suraj, a spot market steel analyst based in Gobindgarh, said that "The implication has already started showing on spot steel prices. The increase of INR 300 is insufficient, looking at the quantum of rise in freight rates. Freight rate increase will have multiple implications on steel mills as all raw materials including iron ore, scrap, coking coal and ferro alloys will be impacted. Hence, Steel price will go up at least by INR 800 per tonne to INR 1,000 a tonne."

Mr RK Sharma secretary General of the Federation of Indian Mineral Industries believed that iron ore exports will be unviable. Additionally, domestic movement of raw materials and finished products will be costlier at a time when the steel industry is struggling with lower demand. Consequently, the proposed increase will be a dampener for steel industry.

Mr Sanjeev Jain, a metals and mining analyst with global consultancy firm Ernst & Young said that "Railway freight is one of the most significant factors in determining cost of steel production.With the freight cost going up, all raw materials including coal and iron ore will become costlier. As a natural consequence, coal, iron ore and steel price will go up."