Indian domestic steel mills are seeking huge price escalations of as much as INR 15,000-20,000/mt ($197-262/mt) for cold rolled coil (CRC) as they begin long-term supply contracts with leading automobile companies, SteelOrbis has learned from industry circles on Friday, March 25.
The sources said that the long-term supply contracts of several leading steel mills including ArcelorMittal Nippon Steel Limited (AMNS) and Jindal Steel and Power Limited (JSPL) are expiring in April and negotiations on new contracts have been initiated.
Industry sources said that, though these are early days and the conclusion of contracts could not be predicted yet, the indications for the initial talks are that steel mills are not only seeking huge price increases but also demand supply contracts be effected retrospectively or, in other words, that higher prices be paid for deliveries already completed to buyers.
Explaining the rationale for seeking retrospective effect for price increase in new contracts, the sources said that the normal practice is to use the average CRC price of the past six months as a benchmark for a new contract price. But if the average price for October-March is to be considered, it will not fully reflect the huge cost inflation suffered by producers over the past one month, following the Russian invasion of Ukraine and supply chain disruptions in imported raw materials.
It was also pointed out that a negotiated price increase of $197-262/mt being sought by mills is not unreasonable considering that the current CRC traded price in the market as a base price for mills is in the range of INR 79,000-81,000/mt ($1,037-1,063/mt) ex-works and the effective landed price of imported CRC works out around INR 94,000-98,000/mt ($1,234-1,286/mt)
Sources at mills said that the price in long-term contracts will be frozen for six months and insulated for any upside price movement during the period the price increase is being sought for and should be acceptable to both buyer and seller under the present global market conditions.
