Hammered Down

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Thursday , May 15, 2008 at 2339 hrs After months of resisting it, the steel industry did blink after all. Following some tough talking by the government to rein in escalating steel prices, manufacturers, especially primary steel makers, decided to bring down prices of products such as TMT bars and hot rolled coils by almost 15-20% a few weeks ago.

Till then Indian steel prices were more or less neck and neck with international prices. So, when rebar (TMT) prices internationally were in the range of about $1,050-1,100 or Rs 42,000-44,000 per tonne (exchange rate Rs 40 to a dollar), Indian prices were brought down to about Rs 35,000-38,000 per tonne.

This followed the government's move to levy an export duty on semi-finished steel and galvanised steel as well as remove the customs duty and countervailing duty on steel-making inputs and TMT bars. Hot rolled coils, another key steel product, quoting at the same level as that of rebars in the international market, was brought down to about Rs 38,000-40,000 per tonne.

This wasn't the end of the story, though. The Centre managed a further reduction from steel makers to the extent of Rs 2,000 per tonne on rebars and Rs 4,000 per tonne on hot rolled coils. So, rebars are now priced at Rs 33,000-34,000 per tonne and hot rolled coiled at about Rs 35,000-36,000 per tonne. This has been done following an assurance from the government that 15% export duty on semi-finished steel and 5% export duty on galvanised steel will be brought down substantially or phased out.

Privately the government has also assured players that the prices of steel-making inputs as well as freight rates will be kept low. The question: is this policy sustainable at a time when both steel and its raw materials such as iron ore and coking coal have been running firm in terms of their international price. Says a steel player on condition of anonymity, “For now these prices will be maintained. Let's see what the government does in terms of controlling input costs, which has been the cause of the hike.”

If input costs are contained, margins of players will not be impacted significantly. But if they are not contained, a hit on bottomlines is inevitable. Says Seshagiri Rao, director, finance, JSW Steel, “We anticipate bottomlines to get eroded by 10-12%.”