Sailing Up

Updated: Nov 10 2003, 05:30am hrs
The steady uptrend in steel prices over the last 18 months has boosted the bottomlines of its major producers but it has also worried user industries like automobiles and auto ancillaries. Some sectors have even pleaded for government intervention but the Union steel minister BK Tripathi has rightly ruled that out stating that domestic steel prices are now market-driven. However, the government did provide some respite to user industries by withdrawing the stipulation that required importers to get their imports certified by the Bureau of Indian Standards. Automobiles and auto-ancillaries are an important user industry and account for 15-20 per cent of Indias steel consumption. While import norms thus have eased, leading automobile manufacturers are still debating when to pass on the burden of costlier steel to the consumer. Steel prices, however, have not adversely impacted on their financials so far as they benefit from a surge in demand from the growing middle class. In contrast, bullish prices have enabled steel companies to come out of losses and slash debt. SAIL thus has been able to prune debt considerably even as it has nearly wiped off its losses. The Rashtriya Ispat Nigam Ltd posted a net profit last year after 10 years of losses.

But how long will this good run last For a while, it appears. Looking beyond Chinas Olympiad-driven import boom, Indias steel prices may remain firm also due to domestic factors. Steel output this fiscal is around 35 million tonnes while consumption is 30 million tonnes, leaving an exportable surplus of five million tonnes. The strengthening recovery in manufacturing, growing pace of infrastructural activity like highway construction and housing boom will further boost steel consumption. Seven thousand kilometers of gas pipelines are expected to be laid over the near term, which is highly steel-intensive. Steel prices thus may firm up further as shortages arise. In this milieu, the government is talking of a national steel policy to step up the countrys low per capita steel consumption from around 29 kg to 400 kg-plus to match with the developed worlds. Chinas 133 kg per capita consumption also appears a lot more respectable. The outlook for the steel industry thus is bullish as infrastructural activity gathers momentum and prices remain at high levels.