Stronger Rupee Tormenting Industry, Say Steel Makers

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New Delhi, May 2: The rise of the rupee against the dollar and plateauing of prices in international markets have set alarm bells ringing in the steel industry.

Every one rupee rise against the dollar results in an operating loss of around Rs 1,000 crore to the industry.

Says Indian Steel Alliance (ISA) president Moosa Raza, “Appreciation of the rupee is hitting the domestic industry very badly.”

Essar Steel director J Mehra told FE that the steep appreciation in rupee over the past one month and a half has resulted in erosion of realisations to the extent of Rs 1,100 a tonne and stressed the need for stabilising the rupee-dollar parity.

What has added to the domestic industry’s worry is stabilisation of prices globally, which in case of some products have even started coming down.

Further, the China factor too seems to be tapering off as construction activities in the world’s fastest growing economy have slowed down.

Domestic steel manufacturers feel that the China factor could bring down prices further.

Although Indian steel companies may not be exporting huge quantities to China, it can definitely have a negative impact on international steel prices which in turn would affect domestic prices.

Jindal Stainless Limited (director-finance) Arvind Parakh said, “The China factor is more of a sentimental play and the fundamentals have not changed. The Indian steel story is still intact.”

On the issue of rupee appreciation, Mr Parakh said, “Indian companies will have to live with the situation and will have to absorb the cost and move up the value chain.”

According to a quick study done by a large steel manufacturer for ISA members, during March the rupee appreciated by around Rs 2.65 to a dollar.

If the rupee stays at the current level, it can hit the operating profit of the five companies (under ISA’s stable) to the tune of Rs 1,940 crore in 2004-05.

The Indian Steel Alliance is represented by top five manufacturers such as Steel Authority of India (SAIL), Tata Steel, Essar Steel, Ispat Industries and Jindal Vijaynagar - as its members. They are producing around 20 million tonne of saleable steel and generating combines turnover of over Rs 45,000 crore.

During 2003-04, operating profit based on a dollar-rupee parity of Rs 46=$1, the operating profit of these five Indian Steel Alliance members stood at Rs 9,219 crore, which comes down to Rs 7,279 crore based on the exchange rate of Re 43.39 to a dollar.