Sharp rise in steel prices hits manufacturing, MSMEs

A sharp rise in raw material prices, especially steel over the last few months is impacting the recovery in manufacturing, construction and small and medium industries.

As coronavirus lockdowns were gradually eased, steel prices have soared on the back of rising demand. The prices of hot-rolled coil have increased 26% to Rs 47,000 per tonne in November compared to Rs 37,400 per tonne in July this year. The prices of cold-rolled coils have risen 31% during the same period to Rs 54,600 per tonne as against Rs 41,700 per tonne, according to Indian Construction Equipment Manufacturers Association (ICEMA).

As a result, the user industries have been facing difficulty in accessing the key raw material and their margins have come under huge pressure.

“The increase in raw material costs is leading to escalation in project costs and is adversely impacting the cost competitiveness of OEMs as well as the vendors that are largely MSMEs,” Sandeep Singh, President, ICEMA & Managing Director, Tata Hitachi Construction Equipment Machinery India Pvt Ltd told DH.

The small and medium industries are also facing the heat of price rise in electronic and electric components, plastic and fibre parts. They are also facing other problems like rise in the prices of container charges due to shortage.

“We are not able to get a price rise from large companies that outsource from us. Also, the shortage of labour is adding to our woes as we are not able to meet the delivery schedules,” R Raju, former President, Karnataka Small Scale Industries Association said.

He alleged that distributors and stockists are hoarding steel in anticipation of a further rise in the prices. The small industries cannot afford to pay higher prices, he said.

ICEMA has submitted a memorandum to Nitin Gadkari, minister for road transport and highways and MSME and sought the intervention of the government in regulating prices. Gadkari said that he has taken up the matter with the prime minister.

Singh said the higher prices of steel could derail the ambitious growth target of the construction equipment industry. Also, it will result in price escalation for various infrastructure projects being undertaken by the government as part of the Rs 1 lakh crore infra spend over the next five years.

The Indian construction equipment industry is looking at nearly doubling its sales volume over the next five years as the government is set to spend over Rs 100 lakh crore on infrastructure projects. Currently, the CE market size is pegged at 84,000 units in FY20.

The sector is betting on construction of $200 billion worth of roads, 200 low-cost airports, 100 smart cities, 40,000 kms of rail line planned in the next one decade and 100 million houses to be built under Housing for All by 2022, according to a vision 2030 document released by Union minister for road development and shipping Nitin Gadkari.