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, Seshagiri Rao, Joint Managing Director and Group CFO, JSW Steel, said.
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 a duty or surcharge, he replied in affirmative.
"We have been working on (something) what is happening globally. The coking coal prices went up by four times from $120 per tonne to $400 a tonne in just last four weeks. Thermal coal prices have gone up.
"This kind of volatility is very difficult to absorb for a steel company. If we look at in Europe, one steel company has introduced a 50 euro surcharge and in the UK, a steel company introduced two surcharges totaling 25 pounds," Rao said, explaining the rationale behind the move.
The first company is charging 50 euro as energy surcharge, while the second 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 it is not new in the 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 the volatility (in the market) we are also contemplating discussing it with our customers."
Rao further said there are three segments where the sales are made. The segments are namely retail, exports and the 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...there it is possible. 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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