Despite slashing prices of hot rolled (HR) coils by Rs 4,000 a tonne, private integrated steel producers like Essar Steel, JSW and Ispat Industries will not see much pressure on margins. This is because the price cut is only for sales ultimately destined for domestic use, while the supply of the product as an export component is much higher.
According to trade analysts, these companies provide bulk HR supplies to stand-alone cold rolled (CR) and galvanised steel manufacturers like Bhushan Steel, National Steel and Uttam Steel, primarily meant for export. Therefore, the three producers receive market prices for most of their HR products.
However, state-owned Steel Authority of India Ltd (Sail) and the country?s largest private sector producer, Tata Steel, are not as fortunate as they do not sell much of their HR products to CR and galvanised manufacturers, but to auto component manufacturers and tube makers for domestic sale.
The math is simple: the market price for HR is around Rs 40,000 a tonne, which the producers have reduced to Rs 36,000 a tonne for the domestic market. Essar, JSW and Ispat sell most of their HR to CR producers on long-term agreements and very little on the spot market.
Stand-alone CR manufacturers largely export their production. Though the export-to-domestic market sales ratio differs from company to company, analysts peg it at an average of 60:40. Further, for CR producers, despite the 10% export cess, it is still lucrative for them to ship overseas rather than sell domestically.
Prices of CR products in the international market are around Rs 49,000 a tonne and roughly Rs 41,000 a tonne in the domestic market. After adding the 10% export duty, realisations are still around Rs 44,100 a tonne.
Similarly, for galvanised products, prices in the domestic market are around Rs 46,000 a tonne, whereas in the international market it is around Rs 55,000 a tonne. After paying an export tax of 5%, companies still realise Rs 52,250 a tonne?again, much higher than domestic prices.
According to an industry source, ?This just goes to show that the government?s move to levy an export duty to check prices is futile. That?s why we had suggested that there?s no point in levying the duty.?
