The Indian steel industry is going through a bad phase, but worse is yet to come since the prices of steel in the world market are falling further. The Black Sea ports which channel steel from the CIS countries are said to be choked with steel stocks. Ukraine is said to be offering cold-rolled (CR) coil at $300 per tonne free on board. Hot-rolled coil is available around $210-230 f.o.b per tonne.A better quality HR coil is being offered at $230-240 to the US and west Asia. Ukraine billets are being hawked at $175 per tonne f.o.b and there are cases of billets being offered by Asian producers at $120 per tonne, which is even lower than the price of scrap.
The disease is catching up all over the world. Turkey has slashed production, but billets are for sale at $210. Debars are going at $240-$250 and wire rods at $260-265 per tonne f.o.b.
The steel industry has been asking for a dumping duty for the last two years. The industry says that the our dumping duty action is "procedural and not protectionist."While India has been talking endlessly of imposing an anti-dumping duty, other countries like Thailand have imposed them in no time at all. Our machinery just grinds on without any action.
Meanwhile, profits in the steel industry have been falling and SAIL says that it has not been able to get any price increase on its steel while costs have increased. SAIL has already absorbed Rs 800 crore in the current year.Dr JJ Irani of Tisco is asking for a level playing field and anti-dumping duties. The industry wants to increase duty on HR coil from 25 per cent to 35 per cent and CR coil from 30 per cent to 40 per cent. It is doubtful whether there could be an increase of this magnitude when the WTO wants still lower duties on steel.
The arc furnace steel industry in India is virtually dead. Out of about 180 units, over 90 are closed but the surviving ones are leading a hand to mouth existence. In the south, particularly Karnataka, only one unit is working while the others are closed. The sickness has spread toMadhya Pradesh, Uttar Pradesh, and Maharashtra. The secondary sector is showing increased production only because production of Essar and Lloyds is added to it.If 1997-98 has been bad, 1998-99 is going to be nightmarish if there is no dumping duty or safeguard duty imposed immediately. The flat products scene will see a further surplus with the startup of Jindal Vijayanagar and Ispat and the full working of Essar and Tisco. SAIL is thinking of cutting down production at Bokaro but it is difficult as production is linked to productivity bonus and workers will oppose it. SAIL is also talking of VRS but implementation leaves tough choices, with the good ones leaving and deadwood remaining.
The Rs 10 shares of Lloyds and Ispat are being quoted around Rs 3 and the financial institutions have a major stake in all the new steel producers. Will the money go down the drain? Is there a way out for the steel producers? For all the new producers in steel, it is debt servicing which is ruining the prospects. Just asSouth Korean giants like Daewoo Motors are being taken over partially (50 per cent stake is being taken over by General Motors), will India's steel giants also be taken over by large world producers? The possibilities are not strong as the Indian companies can be enervated and weakened further by unfair competition. But a number of alloy steel producers from the west are looking for partnerships with Indian producers to produce for the world market.
Recently, Marubeni had made an offer to invest in the Bhilai Steel Plant to produce a million tonnes for export. Since Bhilai at present has its own expansion, the offer has not been taken. But these are winds in a particular direction.
SAIL has spent over Rs 10,000 crore on modernisation of Durgapur and Rourkela. This investment has saved the two plants from closure but will it save SAIL from closure? If market-oriented economics was to hold sway, SAIL should have modernised Bhilai and Bokaro first, which were its milch cows, but are no longer likely to beso. Bokaro is being beaten by Essar, Tisco and imports and even Bhilai is being worsted. It will take many more years before Durgapur and Rourkela yield profits, and they may need more investments, while Bokaro and Bhilai are drying up.
It must be said to the credit of SAIL that its operating profit is intact while depreciation and interest is killing it. 1998-99 may actually push SAIL in the red, thus sealing the fate of the corporation.
The world over the trend is toward mergers and consolidation and Europe is dominated by a few producers who produce more than 10 million tonnes of steel each. The Indian steel industry, therefore, will have to think of itself as one though it may operate under different names and management. In the seventies, the European steel industry saved itself by declaring a manifest crisis, imposing quotas of production, declaring sale prices, and restricting imports. The same remedies may not be available today but the industry needs to act as one and getting the anti-dumpingduty in place and protecting itself from unfair imports is the first priority.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
