Steel manufacturers are perfectly justified in marking up prices as it will help them generate the funds for capacity addition, according to PK Bishnoi, chairman and managing director of the government-owned Rashtriya Ispat Nigam Ltd (RINL).

“Better pay a fair price to steel and steel manufacturers so that they can generate enough surplus to invest for capacity addition,” Bishnoi said, claiming that users were ready to pay even more for RINL products.

Bishnoi said that, besides the increased cost of inputs, the current demand supply mismatch has also created the conditions for an increase in prices. Steelmakers will have to invest to make steel supply steady.

The Indian steel industry has attracted the maximum investment among all industries, with a total of Rs 2,85,000 crore committed to take capacity to 110 million tonne by 2019-2020, from just 31mt now.

Bishnoi, addressing an interactive session organised by the Merchants’ Chamber of Commerce, said the steel industry would be in a comfortable position to invest if it can generate a surplus of at least Rs 2000-crore every year.

Visakhapatnam-based RINL has effected the highest price increases in the latest round, marking up TMT bars by Rs 5330 per tonne.

But Bishnoi said the market was ready to pay Rs 1800 more for every tonne of RINL steel bars.

“We increased the price of TMT bars by Rs 5330 a tonne but we got Rs 1800 more per tonne in selling through e-auction, a sales mode transparent enough,” Bishnoi said.

“RINL prices are set following the market dynamics. There is no point in keeping prices down (just) because RINL is a PSU,” Bishnoi said.

Last week, steel minister Ramvilas Paswan had said that even if the government does not allow SAIL and RINL to increase prices, it would not affect the market because the private players have a 72% share.

However, user industries say that the domestic price hikes have made imports from China and Thailand more attractive. The production cost of primary steel in those countries works to around Rs 25,000 per tonne. Even after adding export tax and profits, it would be lower than the price of domestic steel, an average of 34,000 per tonne at present across all categories.

According to Anupam Shah, vice-president of the MCC, the Chinese steel industry may invade the Indian market after the construction demand created by the Beijing Olympics is over.

But Bishnoi said the Chinese government wants to close down many old and polluting steelmaking units, keeping just as much capacity as the country needs.