RBI raises interest rates by 25bps. Diesel prices next on the list. Multiple worries for steel industry.

Thursday, 16 June,

Today the central bank raised the interest rates by 25bps (basis points). Although the rate hike was in line with the market expectation there’s growing fear of hike in diesel prices. Presently the oil marketing companies are having under recoveries of Rs 15.44/liter on diesel and want the government to raise the diesel prices by at least Rs5/liter. This can be a major deterrent for the steel industry.

The steel industry is already suffering form multiple problems of low demand, shortage of labor and tight liquidity. Now a cost push on the transportation front will make the matters only worst for the industry. If the prices go up for diesel then it’ll be very difficult for the steel manufacturers to push for a price increase and as the monsoon season is traditionally a weak season for the industry and this year has been very a though year for the steel industry and a increase in the transportation cost is the last thing that the industry wants.

But if the diesel price hike goes through the best that the industry can hope for is a partial passing on of the cost. It’s very clear form the market trend that the industry will have to absorb some of the cost to maintain sales volumes. Cost of all the factors of production are going up right form labor to raw material and the sale prices are not able to keep up with rise raising fear of stagflation.