To offset the rising input cost, domestic steel giant JSW Steel is planning to levy a surcharge on sale of its steel products to its long-term OEM original equipment manufacturer customers, according to a top company official.
JSW Steel will be the first company to introduce the concept of surcharge to the domestic steel market.
There is a huge pressure on the cost of production. Cost of per tonne steel production went up by 19 per cent or Rs 6,600 per tonne quarter-on-quarter in July-September 2021, said Seshagiri Rao, Joint Managing Director and Group CFO, JSW Steel.
The rate of coking coal - a key steelmaking raw material for which players remain dependent on imports - has also gone up from $120 a tonne to $400 a tonne in just four weeks, he said.
When asked whether the company is looking to pass on the burden of increased raw material and production cost to its customers in the form of duty or surcharge, he replied in affirmative.
We have been working on something that is happening globally. The coking coal prices went up by four times from $120 per tonne to $400 a tonne in just four weeks. This kind of volatility is very difficult to absorb for a steel company. If we look at in the UK, one steel company introduced a 50 euro surcharge and in Europe a steel company introduced two surcharges totaling 25 pounds, Rao said, explaining the rationale behind the move.
The second company is charging 50 euro as energy surcharge, while the first one is charging 20 pounds as energy surcharge and 5 pounds as transportation surcharge, he said without naming the entities.
The concept of surcharge would be new to India but not new in global markets, he said.
Replying to a question if it would be feasible to levy surcharge on the sale of steel products in the highly price sensitive Indian market, the official said JSW Steel will take its customers into confidence for this new concept. Because of volatility in the market we are also contemplating discussing it with our customers. Rao further said there are three segments where sales are made. The segments are namely retail, exports and OEM original equipment manufacturer customers.
In the retail segment there is already a price fluctuation on a daily basis, so the surcharge concept would not work in this segment and in the exports prices depend on various other markers.
The third segment is OEM customers with long term relationships. The concept has to be explained to them, he said.
Rao, however, did not elaborate on the amount which will be levied as surcharge but said it will be equally proportional to the high raw material prices.
There will be a base. If the raw prices go beyond that, the surcharge will be calculated accordingly.
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