The Indian steel sector is now keen on the Union government announcing interest subsidy on housing loan, as the slowdown in the realty sector owing to the global meltdown had a major spillover effect on steel industry.
Sushim Banerjee, SAIlL?s executive director (commercial), said 50% of India?s steel consumption goes to the housing and infrastructure sector. So the steel industry is looking forward to the housing and the infrastructure sector to recover. A special financing package for the infrastructure sector too would help the steel industry, Banerjee said.
The Union government has already given a proposal to extend loans below market rates, which according to market speculators, is likely to be fixed at 8% for a period of five years.
Rates of some banks crossed 13%, as against 9% a year ago, and this became a major factor for a fall in demand of buying homes.
?If the demand in the housing sector does not grow in the next 3-4 months, it will have an adverse effect on steel sector,? Banerjee felt.
According to Santosh Bajaj, chairman of the standing committee on iron and steel of the Merchants? Chamber of Commerce, the steel industry should accept that the economy is switching over to a low price syndrome. In fact, the industry is keen on retaining the 10% margin to the intermediaries than passing over the cost cut to the consumers.
Steel prices started coming down in a situation when cost of all major inputs were falling drastically. Even the cost of coke, which is the scarcest of all inputs for the steel industry, has come down to $400 per tonne from a peak of $750 per tonne. Therefore, selling steel at a lower price is not unprofitable.
But the challenge is liquidating the stock at the current price, which was manufactured at a higher cost and owing to sudden slowdown of the demand, the inventory cost adds to it, Bajaj said.
Ganeshan Natarajan, president and chief executive officer of Ennore Coke Ltd, said clearing the stock of coke at the present price regime, which was produced during the higher price regime, is the greatest challenge. For the coke companies, it was urgent to clear the current stock and bring the cycle of manufacturing to sales under the current price regime.
?Coking coal price as well coke price is bound to grow as there is a huge demand-supply gap,? Natarajan said.
He said even as demand of steel has come down by more than 40% in the last couple of months, coke could never match the demand and supply, as the gap is huge. Demand of steel has already started growing which may go up 12-15% in the next two- three months.
Bajaj said to support the steel industry, the government should have imposed a 10% import duty on steel, instead of the 5% already imposed, and prevented cheap steel from entering the country.
Free on board (f.o.b) value of imported hot rolled coils is being quoted at $420 per tonne, as against domestic price of Rs 29,000- 30,000 per tonne. Imports of HR coil would still be cheaper, paying a 5% import duty, Bajaj said.