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‘Steeling’ The Shine SR Kasbekar   The Union budget for 2004-05 has dealt a double whammy to the steel sector. It has slashed customs duty on steel imports from 20 to 15 per cent while excise on steel was raised from 8 to 12 per cent. Together, these proposals may make domestic steel less attractive even though the steel industry claims that the landed price of imported steel is higher than that of domestic steel. But this situation may not last long as the boom phase of the steel cycle may peter out shortly. This is because capacities built up over the last year or so to take advantage of the bullish prices in the international market may create a glut. Steelmakers count on higher offtake from sectors such as irrigation, roads and construction that have claimed an impressive share of public spending in the budget. It’s doubtful if they succeed in passing fiscal imposts on to the customers fully to benefit from modvat without inviting resistance from the user sectors. Steel offtake from China, that went in for an infrastructural binge, may taper off as its economy slows down. These factors, coupled with easy input prices, may have a bearish impact on domestic steel prices. With additional steel capacities coming on stream from SAIL, Tata Steel and Rashtriya Ispat Nigam, prices may remain subdued in the future. Yet, steel companies have come out shining in 2003-04 showing a 9 per cent margin helped by a 7 per cent plus rise in finished steel production. Better price realisations, high volume growth and a right product-mix helped in wiping out losses incurred over the previous five years. Most companies count on a 6 per cent plus growth annually in global offtake in the next five years. The world economy is expected to consume about 958 million tonnes finished steel in 2005 up from 918 million in 2004. This may help to an extent; so too will low cost leverage. However, raising the share of value-added products and customisation will be crucial for the future. At present, the real bane is a measly 29 kg per capita domestic steel consumption as against the world average of 150 kg (450 kg in developed countries). Indian steel companies can neutralise the impact of an impending steel glut if they succeed in promoting the use of the commodity in newer areas. The task is not easy as the existing user industries have complained that it affects their bottomline. Thus, for steel companies, the challenge lies in turning out cheaper steel.

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