Logically, if there is dumping by international players in the domestic market, then they would be selling their goods cheaper in India compared to their local markets. This would increase the market share of international players, vis-a-vis the local companies. Since establishing that international players are dumping their goods in the country is difficult to prove, and it takes a lot of time, many governments have used market share as an indication of whether dumping is taking place. In fact, the US government imposed provisional anti-dumping duties on a host of international players in steel the moment they found out that in a shortspan of six months, the share of steel imports in domestic consumption had risen by around 20 per cent.

Let us see what's happening in India. Domestic consumption of steel is 24 million tonnes of steel per annum, of which local hot-rolled coiled (HRC) production is 5-6 million tonnes. Imports are at 1.2-1.5 million tonnes per annum, and 90 per cent of this is HRC imports. Further, these imports include OEM purchases by Maruti from Nippon Steel for its body. Technical experts claim that the grade imported by Maruti is not manufactured in India.

Now, if there was dumping, then the ratio of these imports to domestic consumption should have risen. But that is not happening, and it is unlikely to happen in the future. Indian ports cannot handle more than 1.5-2 million tonnes of imports. Trade circles say that on an average, imports per month through Mumbai have remained stagnant at the rate of 10,000-20,000 tonnes per month. When we add the figures from other centres, we get a lower average of imports comparedto last year.

Still, steel prices are falling. Today, the domestic steel prices for HRC have fallen below Rs 14,000 per tonne. This is down from the price of Rs 20,000 offered by companies for the product after the announcement of the special 4 per cent duty on all commodities, and raising the import duty on CR. A Rs 14,000 per tonne ex-godown price means Rs 10,000 ex-factory price. Even prices at international levels are at $240-$250 per tonne, down from $335 per tonne. Few players in the world can recover their full variable cost--leave alone fixed cost at such ridiculous low prices.

The question then is why is the price falling?

Firstly, market sentiments are at low levels. This is because of the lack of local demand, which has much to do with the lack of government spending on infrastructure. This weakness in sentiment is exacerbated by steel buyers, who are using the price fall to their advantage.

The modus operandi is simple. Customers take a quote from international traders about"seconds" quality steel, and using this as a benchmark, buy steel from domestic producers at a premium of only $30. For example, today, the market quote available from Novoleptesky (Russia) for buying seconds, or a bunch of various grades and sizes, is $170 per tonne. Similar quotes are available for South African steel. Prices of these mixed material (comprising a bunch of whole grade of material) have traditionally been at a discount of $50-$75 to higher-grade steel, that is, the grade D and grade DD categories.

But the volumes of these purchases are small. Every one knows that these imports cannot meet the full demands of customers. Nevertheless, by using quotes for seconds, or a mix of various grades, they force domestic steel companies to reduce their prices. With the dire financial condition, and prospects of further reduction in demand, domestic steel producers comply with a reduction in prices to avoid losing the order to a competitor, which ultimately pushes down the market price.

It would benaive to conclude that the threat of lower import price can by itself drive down prices. Domestic steel companies are equally at fault.

Unable to bear the heat of the market, steel producers have added another level to reach out to their cutomers. Companies are using the tender route for sales on a regular basis. Here, the entire warehouse stock of 500 tonnes is bundled in a bunch of 50 tonnes each. These bundles are offered to prospective customers, which, in a majority of cases, happens to be market dealers, over a period of a week to ten days. The person who bids the highest gets the bundle. But instead of the company getting a better price through such a mechanism, what happens is the persons who bid for the last tender manage to get the lowest price.

For instance, SAIL sold approximately 5,000 tonnes each in September and October through the mechanism. The market lot lifted in mid-October was Rs 2,000 per tonne lower than that of Rs 14,000 per tonne bid in September. This price of Rs 14,000 per tonnewas still lower than the prevailing price of Rs 16,500, and lower than the listed price of SAIL itself.

If domestic producers sit together and decide to push for a semblance of order in the price mechanism, they can achieve far better prices than under a scenario where the government imposes an anti-dumping duty. Even today, good quality of steel from Thyssen and Mansiem is quoted at $275-$300, against $335-$350 a year back. It is only the seconds and refill prices that have fallen, and so have the ability of producers to say no to lower prices.