User industries may not be happy, but, one will have to get used to high steel prices for some more time to come. Supply side constraints are going to be more severe in the days to come for steel, iron ore, and coking coal. The government cannot perform any miracle. It does not have any market friendly policy instrument that can make a significant difference.

Supply can be increased by waiver of import duty on steel and creating special provisions for moving steel out of the port to various parts of the country. A concerted effort can encourage steel or steel scrap imports. Revenue losses can be covered from the excise duty levied on higher base prices.

With steel production starting to lag behind consumption, the situation in the country is not expected to improve any further. If infrastructure projects are to be on track and

industrial production and construction are not to be affected, the supply of steel at whatever price is to be maintained. In the absence of adequate imports, steel shortages will hit the user industries hard and with their strong forward linkages with other important sectors in the economy, it will add to the mild recessionary conditions in several sectors in the economy.

Conditions in the rest of the world are similar. While steel makers are feeling the pressure of high raw materials prices, the steel user industries have been hit hard by the surge in steel prices on the one hand and the fear of a possible slowdown in demand for their own products in the days to come.

The Chinese government, with its active intervention, has been able to keep the domestic steel prices lower by as much as 10-20%, depending on the product than the prices at which they are importing or exporting. The Chinese have not exported as much as is possible despite rising stocks in many places and in many products. They have been able to maintain conditions of relative glut in their own country, whereas the rest of the world is faced with a huge shortage. Therefore, Chinese steel user industries have been able to maintain their cost competitive edge in steel-based industries. This will help them in the days to come when the market will turn competitive for them in the face of global recession. Most countries with high steel prices will lose out. The impact of recession will be harder .

The news of some relief for the rest of the world is that

China still has a lot of surplus production and despite restrictions, significant quantities are on the world market. Minus this, steel prices would have been another few notches higher than what they are

now.

Interestingly, even in the best days of steel prices, there are reports of induction furnaces closing. Reasons? They are squeezes between the scrap and DRI suppliers on the one side and the dominant rolling mills on the other. Supply of billets from the secondary sector has fallen leading to a corresponding drop (or stagnation) in the production of rebars. The result has been seen well. The prices of TMT around Delhi has jumped to over Rs 43,000 a tonne, tax paid. These market prices are pegged on the landed costs of import of the same.

It is necessary to help the secondary sector to survive. If the government is in a benevolent mood, it can think of a package to save them. The government should also act to discourage excessive dependence on steel. One needs to move now from active promotion of it to recycling and judicious use. The government needs to support such programmes. It is time now to focus on the adverse implications of the unwarranted growth of mineral-based industries. Irrespective of who owns or runs the mines, growth of the mining industry will have to be carefully calibrated to the overall requirement for sustainable growth.

The author is strategy consultant: Steel, Minerals,

and Coal