Keeping out Lakshmi

Written by The Financial Express | Updated: Jul 1 2008, 03:36am hrs
The world may be facing its first steel shortage in decades and it must be frustrating for the Indian steel industrythe government has adopted a policy to force down prices of steel artificially. This would have been an ideal time for the industry to make profits. The shortage scenario seems to be quite real. Lakshmi Mittal isnt the only one who is flagging the problem. Analysts at Credit Suisse have said that the global steel supply shortage would take years to resolve while steel prices rise rapidly. International steel prices have increased by 23% to 82% since early 2007. Steel producers continue to be optimistic about the near future as is evident from the record prices being paid by Chinese importers of iron ore. India has seemingly wasted a great opportunity to gain from buoyant global markets even after large investors, mostly foreign, had expressed their interest in the sector.

Investors like Posco and ArcelorMittal had signed memorandums of understanding (MoUs) with the states of Orissa and Jharkhand to set up steel plants of 12 million tonnes capacity each almost two years ago. These are yet to get a green signal. Another 194 MOUs signed between private investors and state governments to set up 243 million tonnes of additional steel capacity seem to be faring no better. Plans to more than double the steel capacity to 124 million tonnes by 2011-12 and raise it further to 293 million tonnes by 2019-20 seem like bad jokes now. Though efforts have been made to speed up the granting of mining concessions, there are no results to show, not even after the constitution of an inter-ministerial group to monitor and coordinate various issues concerning major steel investments. This lethargy has even affected investments in metallurgical industries, which touched a peak level of Rs 6,298 crore in 2006, then slowed down to Rs 1,907 crore in 2007. Investments are just Rs 326 crore in the first three months of 2008. Though the growing demand-supply gap has been met by imports, which rose by as much as 55% in April-January 2007-08, rising global prices have contributed to the inflationary trend and pushed up domestic prices by more than 30% in the last 14 weeks. With global steel prices continuing to remain high, the government can only blame itself for timing itself out of the booming market, and then importing inflation.