There are talks and reports about possible further intervention of the government in the steel market. This may include the government deciding on a price band within which the steel prices should move.
De facto, it means a ceiling. It is also heard that the government is actively monitoring export consignments of even individual companies. It is reported somewhere that it is also toying with the idea of bringing in a total ban on flat steel products.
How much of those will come true is difficult to say. But, seriously, if the government has such ideas, the problems with the steel industry, or for that matter with the iron ore mining industries, which has also been subject to increased tax pressure, will only rise.
Whatever the government might have claimed on the success of the measures earlier taken, the fact remains that if steel prices came down to some extent, the same was due to a slowdown in demand resulting from lower pace of growth in industrial production and construction as a part of the recessionary pressure the economy currently faced with and the seasonal monsoon rains.
If the major producers have actually kept the prices lower than the market could accept, the intermediaries rightfully would have taken the benefit of that.
Now if you set a fixed margin for the traders, there will be only transactions in the black market and one should remain absolutely clear that the final consumer is very unlikely to get the benefit of that.
Price regulation, in whatever manner it is brought in, favors only the direct end users and to that extent the government?s unofficial measures and summons have benefited the consumer buyers.
But, taking the matter out to the retail market means taking steps which are totally unreasonable, unmanageable and unnecessary.
There is no end to control measures once you have stepped into this regime. You will get tempted to bring in distribution controls and then production controls too. This is what had existed in the past leaving no incentive for the industry to invest to grow competitively.
The problems on the steel mart and the industry need to be handled intelligently and without any pre-determined objectives.Every usually tried control measure has been proved to have given rise to another set of complications only needing further and continuous interventions of the government.
Despite the government?s stance of hands off approach and neutrality on the steel pricing issues, it is clearly getting dragged more and more into it.
The government needs greater market intelligence and more producer specific information to see if its thoughts are on the right track. It needs to look into the competition issues. There are many to worry about. The Competition Commission of India can definitely look into the pricing issues if there is a fear of malpractice.
Supply side concerns are serious. While the government here has been slow in all that needed to be done, the industry faces extensive social resistance to land acquisitions. Mega projects means longer time to start up and requirement of facilities at a hugely larger scale. Managing such large investments has not been very easy in India. There could be better economics and sense for small and mid size plants. At the current rate, unless a big recession takes away India?s steel consumption demand, the country?s steel policy regime seems destined to increasing and unfortunate interventions.
The author is independent strategy consultant, Steel and Natural Resources
