Supply contracts may be negotiated monthly
Much on the lines of the concern shared by Reserve Bank of India Deputy Governor Subir Gokarn on the rising oil prices and its likely impact on inflation management, the ballooning prices of steel-making raw materials triggered by a global liquidity, is causing concern too. Multi-year supply contracts are now meaningless to ensure competitiveness as prices are being negotiated every quarter and very soon will be negotiated monthly or individually for every contract, according to Linus Lobo the Chief Operating Officer of IPFonline, a Chennai-based online platform for providing industry information and showcasing industrial products.
Interacting with The Hindu ahead of a conference on ‘Steel raw materials outlook' beginning here on Monday, he said that steel-making raw materials were now global commodities and global liquidity would have an effect on inflating their prices.
“We can see the effects in crude oil prices which have crossed $90/barrel. Typically when the outlook for dollar is weak, then investors hedge themselves by investing in dollar-denominated commodities.
“When too much cash chases these commodities their prices inevitably get inflated,” he said, adding that gold, silver and some non-ferrous metals were trading at all-time highs. Coal is also an exchange-traded commodity now and physical trade is negotiated by benchmarking with indices.
He said that large integrated steel mills have learnt over the last few years that securing raw materials was critical to maintaining competitiveness. They have invested in coal blocks and iron ore mines.
Policy on resources
On the iron ore export issue, Mr. Lobo said that while the rest of the world followed a nationalistic policy on resources, in India such was not the case and lobbies have managed to keep the export windows open. He also said that if the supply of iron ore increased for domestic players, “we will certainly see a large discount for domestic steel players.”