Rising steel prices put the steel ministry in a fix

Written by Alok Sharma | Rishi Raj | New Delhi, Mar 10 | Updated: Mar 11 2008, 06:40am hrs
Rising steel prices have put the government in a classic catch-22 situation. Much as it would like to check pricesfor their inflationary influence and impact on prices of end-consumer products like auto and durablesit can do precious little within the regulatory framework, which lets firms raise prices based on market movements.

In 2004, the year elections were contested, the government had tried to check steel prices by reducing import duties, but this time, it does not have much elbowroom here since duties are at a low of 5%.

Though last year, the steel ministry had formed a price monitoring committee, under a joint secretary with industry representation, it has only an advisory role. The committee just serves as a forum for government-industry interaction, where the companies justify price hikes or asks for concessions, which is not within its purview.

Sources said the steel ministry is planning to render teeth to the price monitoring committee but support is not coming from other wings of the government, which feel that prices should be market-determined. Further, the steel ministry cant even stop state-owned firms like the Steel Authority of India Ltd (Sail) and Rashtriya Ispat Nigam Ltd (RINL) from raising prices as these two firms control only about 30% of the market.

An old proposal for putting a steel regulator has also failed to pass muster as the government has been advised that it is not feasible for the sector to have one. The government has been advised that a regulator can there be only in areas where the product or service is non-storable in nature. Steel can be stored and therefore does not fall in the category. Telecom services or power supplythe two sectors where there are regulators are non-storbale. Further, the product or services should be non-exportable for being regulated. Steel is exportable whereas telecom and power are not. Regulators are required in areas where theres a monopoly. Theres no monopoly in steel. In power and telecom, state-owned companies were having and continue to have an edge over newer private players.

Regulators are needed in areas where theres fluctuating demand. Like in power theres fluctuation between peak and off-peak hours. Theres no such scene in case of steel. In fact, the production of steel is higher than the consumption and theres surplus available.

Regulators are required where the service is considered essential in nature. Power and telecom are essential services. Steel is not as there are several substitutes available like plastic and cement.

Steel producers like SAIL, Tata Steel and JSW Steel Ltd have raised prices by around Rs 2,500 per tonne early March and between Rs 1,500 and Rs 2,000 during February. Though the prices, in March, were brought down by Rs 500 to Rs 1,000 in response to steel minister Ram Vilas Paswans appeal.