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NEW DELHI: Those in the business of making steel or producing power are keeping a closer watch on the weather forecast in Australia than on the temperature in Delhi or Mumbai. After all, they are already grappling with a situation where input costs have shot through the roof over the last 12 months, and it is not just oil and gas, where the cost has gone up by 17% and 66%, respectively.

While the floods in Queensland did affect production and supply of coking coal, strong demand from developing countries such as China and India has been the prime driver of commodity prices. Whatever be the reason, in the Australian spot market, coking coal prices have gone up by around 56%, while iron ore fines are now close to 40% more expensive than a year ago. Chinese steel scrap is around 25% ore more expensive than a year ago and the price of those from the US, the more preferred one, has gone up by 55%. Not surprisingly, the prices of finished products have gone up by over 20% (see graphic).

But steel isn’t the only source of bother. In the international markets, copper, a commodity used across the manufacturing sector, is now 30% more expensive than last year, while aluminum and lead prices have gone up by close to 14%.

"Pricing in India is now global pricing and it is not just iron ore and coking coal prices that have gone up, even scrap prices are much higher. For its survival, the industry has to pass these (costs) to consumers," says Malay Mukherjee, CEO of Essar Steel Business Group.

Globally, 2010 was a strong year for commodity prices with copper, tin, gold and cotton at all-time highs and silver and sugar trading at 30-year highs. Into the new year, these highs are likely to be tested once again. "Demand continues to provide a sound backdrop while supply concerns have been piqued on adverse weather and an exceptionally cold Northern Hemisphere winter, the effect of La Nina and floods in Australia," Barclays Capital analysts Sudakshina Unnikrishnan and Kerri Maddock said in a research note.

This means that there is more bad news in store for consumers, although prices of white goods and automobiles have already gone up. "We are studying the trend of input costs. If the trend continues in the manner in which it is currently moving, then we do not rule out the possibility of another round of price hikes," said R Zutshi, deputy MD at Samsung India.

George Menezes, chief operating officer at Godrej Appliances says prices could be rising by 2-3% down the line. Apart from higher metal prices, the consumer durable industry also has to contend with a marginally higher exchange rate for the Chinese yuan, which increases their import cost. For instance, Indian air-conditioner manufacturers import nearly half their components from China.

In India, among the industrial commodities, cement seems to be a rare exception, where prices have stayed around the same level in the western part of the country, though there has been some increase in the north due to better demand. An analyst at a leading brokerage says over capacity in the cement industry coupled with a lower demand due to a slowdown in construction have helped consumers.

Though China is trying to moderate the pace of growth, which during the last quarter slowed down to 9.8%, it is unlikely to result in much softening in global commodity prices.