Steeling Demand

Updated: Feb 27 2004, 05:30am hrs
In the face of increasing pressure from user industries, the government on Tuesday announced a slew of measures to control the rise in steel prices. While the import duties on non-alloy steel, metallurgical coke, sponge and pig iron were cut by 5 per cent, it was also decided that the rates of Duty Entitlement Pass Book scheme would be reduced further to dampen exports.

Moreover, the government is also mulling over the possibility of entering into a barter deal with major coking coal exporters like China and Brazil. These measures are in tune with some of the demands made by the user industries in the face of the steep rise in steel prices over the past one year, and are geared to increase the availability of steel in the domestic market.

Given that the demand for steel in the international market has shown little sign of slowing down, the case for maintaining high protectionist tariffs on imports of raw materials is poor, as it would only deny consumers access to the same.

However, as some of the major steel makers like SAIL and Tata Steel have pointed out, the current spurt in prices is only a reflection of the prices prevailing in the international market.

These have been spurred by high demand, especially from China, and the continuing shortage of raw materials, such as coking coal and scrap, and exacerbated by a drop in supplies from primary suppliers. Moreover, high freight rates, which have seen prices going up by 20 per cent, have added to costs.

The steel majors have also denied allegations made by user industries of them indulging in price cartelisation or of diverting much of their output to the export market. Be that as it may, there is a strong case for some restructuring in the steel industry, especially in light of the fact that with infrastructure activity in the country set to burgeon, entailing huge investments in roads, railways and even pipelines, it would further strengthen domestic demand for steel, which may, in turn, lead to shortages. While measures like duty cuts and export controls may help stabilise prices in the short term, there is a real need for the steel industry to not only increase production by investing in greenfield projects, but also focus on access to raw materials such as iron ore, coal and scrap on a regular basis. This would not only ensure freedom from supply bottlenecks for the same, but would also control the volatility in prices of raw materials.