Calcutta, June 24: Steel prices in India may rise by Rs 7,000-8,000 a tonne following last night’s agreement between China’s Baosteel and Australian miner Rio Tinto on iron ore rates.

Indian steel makers say they may have to pay nearly double than what they paid last year for iron ore after the Bao-Rio deal. This could further limit the government’s ability to contain inflation, ruling at a 13-year high.

An executive with a private steel firm said there would be a Rs 4,500-per-tonne increase on account of iron ore alone going by the new arrangement.

The Indian steel industry has voluntarily freezed prices for three months ending July to help the government fight inflation.

“The new coking coal prices are coming into effect. It is higher by 200 per cent than last year. Scrap prices have also perked up. Put together, there will be a Rs 7,000-8,000 cost push in steel making. We have to raise prices after July,” he added.

The price of benchmark hot rolled coil is hovering at Rs 34,000-35,000 per tonne in the domestic market, though it is still lower than Rs 40,000 tonne overseas.

Apart from Tata Steel and Steel Authority of India Ltd, who have captive iron ore mines, integrated players such as Ispat Industries, JSW Steel, Essar Steel, Rashtriya Ispat Nigam Ltd and many others depend on the market purchase of iron ore.

Public sector NMDC is the largest miner of iron ore, and the price at which it exports to Japanese Steel Mills is taken as the benchmark for iron ore sale to domestic industries.

Indian steel companies had expected a 65 per cent rise in iron ore prices when Baosteel entered into a deal with Brazil’s Vale earlier this year.

In the deal last night, Rio Tinto extracted 50 per cent more for its ore than Brazil’s Vale. So far, big miners such as Vale, Rio Tinto and BHP Billiton used to agree on a unified price for iron ore sale to China and Japan.

This year, Australian companies are demanding more than Brazilian firms, citing sea freight differences.

NMDC said it would seek more for its ore from Japanese companies than what Vale has got. “We want it to be close to Rio’s rate. Talks with Japanese Steel Mills are on,” Rana Som, chairman of NMDC, told The Telegraph.

Som said the company wanted its net realisation from export to Japan and Korea to be the same as domestic sale, factoring in a export duty of 15 per cent.

“For me, the percentage is irrelevant. I am not going to pay the export duty from my pocket,” he said.

In other words, NMDC would seek a hike and another 15 per cent on top of that from Japanese and Korean mills. But Som said the hike for domestic industry would not factor in the export duty.