Indian Railways Increase Freight Rates; How will it Impact Steel Industry ?
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The Indian Railways has raised its tariffs for bulk commodities such as coal, iron ore and steel by 8.75%. This is expected to raise costs for power producers and steel and its user industries.
The increase in freight rate is 8.75%, which will net the railways at least INR 3,300 crore as additional freight revenue in the current financial year. However, there's no revision in freight rate for cement, petroleum products, food grain, and urea.
How will it impact the Indian steel industry?
1. Hike in iron ore transportation cost - According to data maintained with SteelMint, nearly 56% of iron ore movement in India is done through railways. Remaining share is for transportation by road and through the slurry pipeline.
As per the analysis, there is not significant change in freight for shorter distances however in longer distances, freight hike shall result in increased cost. Nearly 1.6 MT iron ore is used in making 1 MT of steel, so accordingly, rail freight hike would make an additional cost of INR 100-150/MT.
| Movement | % share |
| Iron Ore Movement through Railways | 56 |
| Iron Ore Movement through Road | 34 |
| Iron Ore Movement through Pipe Line | 10 |
This fig excludes movement of SAIL, Tata, Imports and Exports
Iron ore rail freight rate across major distances-:
| Route | Load Station- Unload Station | Distance (in KM) | Domestic/Exports | Current Base Freight Rate (INR/MT) | Previous Base Freight Rate (INR/MT) |
| Chhattisgarh - Andhra Pradesh | NMDC - RINL | 553 | Domestic | 951.2 | 875 |
| Chhattisgarh - Chhattisgarh | NMDC-Raipur | 847 | Domestic | 1,433 | 1,317 |
| Odisha - Chhattisgarh | Barbil-Raipur | 650 | Domestic | 1,113 | 1,023 |
| Odisha - West Bengal | Barbil-Durgapur | 340 | Domestic | 627 | 577 |
2. Impact on coal -No busy season surcharge and development charge shall be leviable on transportation of coal and coke. Indian railways charge extra freight during peak season, which is applicable for 'April-June' and 'Oct-March' every year. This is an additional charge paid at the rate of 15 % on basic freight rates.
Following freight hike in coal movement, increased cost in steel would come around INR 80-100/MT. Following this, it seems total increase in cost of steel production would tentatively be around INR 300-350/MT.
