There are only isolated news of certain products holding on in isolated markets and that too due to rather localised and temporary factors. For example, billets are holding ground in the south-east Asian markets. There is no global trend in it - either for billets elsewhere or for other products in that region.

The steel industry could not have perhaps dreamt of a time more suitable to itself to see the rupee depreciate. The lower value of the currency will also help duck some of the possible dumping cases. Known fairly well, it becomes more difficult to establish dumping if the domestic currency earnings are high even when the dollar prices are relatively low. This is the reason why many countries with highly depreciated currencies and exporting heavily to the US or the European Union have managed to evade the dumping charges.

It is not easily forgotten how the fall of the South Korean Won led to drop in the cost of production of steel at POSCO by as much as 30 per cent during 1997-98 despite having to depend on dollar denominated purchases of raw materials and spares. This had helped the company to stay out of the dumping cases in major products. However, they have to be careful now because the currency gained substantially since its crisis days.

The depreciation of the rupee has not been seen so much as a problem of domestic origin in that sense. The US dollar has strengthened against some other currencies like the Euro and Yen as well in the past few weeks. The domestic inflation rate remains a little over 6 per cent. Although the rate is on the rise is not seen as alarming. But, the flight of foreign institutional portfolio investment to more attractive destinations like China and Malaysia is something that is not only causing the rupee to slide but also presenting a future investment scenario the steel industry will not be very happy about. There is also an overall drop in business confidence in the industry as seen from various surveys conducted recently.

In the first quarter 2000-2001, steel exports from India shot up 20.74 per cent over the same period last year, according to the preliminary estimates of the Joint Plant Committee. Much of the increases were recorded in the month of June. During the same period, imports have been said to have fallen 3.1 per cent. The apparent consumption of steel has increased 7.2 per cent on gross basis and about 9.5 per cent on the net. The production of finished steel during the same period rose 8.7 per cent in gross terms, a part of which is based on imported semis and intermediates, implying a relatively lower value addition in the industry as a whole.

This export growth is not to be misunderstood as one on a lower base. Last year, steel exports rose to a record level of three million tonnes. But, the steel companies in India, as well as in the rest of the world, are faced with a stumbling block as they see prices dropping sharply, beginning May. The impact of this could be felt from shipments since July. Although the extent is not known on a macro level, there are reports of exports from India losing pace from July onward. Naturally, the low world prices and more than that the resultant uncertainty in the global market have made every buyer and the seller of steel wary of immediate deals.

The global trading levels have fallen. Most of the reported low quotes may not have had substantial transactions associated with those. Only those desperate are clinching deals trying to maintain volumes.The rupee fall will help the Indian steel makers to make more money for the same dollar value of exports or the same rupee revenue for a lower dollar price. Since the Indian companies are price takers, the global price line is not so much determined by them. Therefore, at the given dollar value, the Indian companies will make more rupee earnings. Although the rupee slide vis-…-vis dollar will also raise the costs of imported inputs - coal, limestone, scrap, etc.- the effect of this will not be much and the overall gains will remain strongly positive.

The domestic steel industry, although continues to record reasonable growth, seems to be somewhat worried over the developments in the recent weeks. On a month to month, there is a slowdown felt in steel consumption. There is a reported build up of stock since April. Although this has been perceived to be more a seasonal matter than any indication of a real consumption drop, the ground reality may be a combination of both the factors. Steel production and consumption moved very well with cement in the recent months. Now, there is a slowdown in cement production as well as offtake compared to the corresponding period last year. Now, if these are signals to be taken seriously, a few question marks appear on an otherwise rosy projections of steel demand this year.

If there is a downturn in demand or the market fails to pick up adequate momentum, exports will gain further importance. In fact, the domestic market remained reasonably stable in the first quarter because exports were so much. In its absence the domestic prices would have collapsed further. There was literally a threat before the industry of the domestic prices coming under pressure for certain high volume export products if the global prices drop to levels below which it would not make sense to export. The dollar jump is a bonanza not only because much of the industry's income depends on export earnings, but increased rupee cost of imports will provide the much needed protection from imports and perhaps will halt a possible domestic price spiral down, unless a totally avoidable domestic price war within works the other way round.

(The author is Convenor of Steel Exporters' Forum and the views expressed here are his own)