Oil price hike may impact steel, cement
By A Staff Reporter
The terrorist attack in the US may have another casualty in the form of domestic steel and cement manufacturers. Tension prevailing in the aftermath of the attacks has already driven up the world oil price. Though the world's largest oil producer has assured sufficient supply of crude to maintain the price at a reasonable level, it is unlikely that the price will remain at its current level. Again, all will depend on the retaliatory action by America and its duration. If the US wages a full-scale war its oil demand will shoot up which in turn will push up the oil price.
If the oil price increases domestic steel and cement manufacturers will be adversely affected, as it will push up their freight and power costs. Steel companies spend at least 15 per cent of their manufacturing costs on power and freight. The situation in the case of cement producers is even worse. Cement manufacturers spend between 22-25 per cent on power and another 25 per cent is accounted for by freight costs. Thus, their cost is likely to go up by at least 5-10 per cent depending on the percentage of hike in the oil price. If the period of uncertainty is prolonged even the price of coal may move up in tandem, thereby compounding their problem.
Both these sectors are facing sluggish demand and were hoping for a revival in rural demand consequent to a reasonably good monsoon. But their hopes may not become a reality as war clouds gather on the horizon.