The government on Wednesday succeeded in making the steel companies slash prices of the base product, HR coils, by Rs 4,000 per tonne and reinforcement bars by Rs 2,000 per tonne. According to sources, the government skillfully negotiated the deal with the companies this time. It offered them that if the prices were reduced, it would look into either removing the export tax on steel companies or softening it considerably. Sources said negotiations were finalised on Tuesday.

In an effort to rein in steel prices, the government had last month levied a export tax of 5-15% on various steel products. While for HR coils and plates the duty is a high 15%, it is 10% for CR coils & pipes and 5% for galvanised products.

Sources said the earlier proposal to classify steel as an essential commodity is also not being considered actively, as it is felt that the move would lead to hoarding, which would only lead to rise in prices.

Sources said the government might adopt a gradual approach to removing the export tax by first reducing to a uniform 5%. Another option could be that there would be no export tax on CR coils and galvanised products, which would be manufactured by imported HR coils. The companies would be restrained from exporting HR coils so that there?s no shortage in the domestic market.

The steel companies have earlier dissolved their association, Indian Steel Alliance, after the government felt the producers were acting as a cartel.

Representatives of integrated producers like the Steel Authority of India Ltd, Tata Steel, Essar Steel, Jindal group and Ispat Industries, who first met steel secretary RS Pandey and announced the price reduction, later met Prime Minister Manmohan Singh and urged him to ensure that raw material prices and freight rates are not allowed to rise.

With the price cut, prices of HR coils have come down to Rs 35,500 from the earlier Rs 39,500.

According to an Ispat spokesperson, the reduction in prices is for domestic consumption only and is applicable for long-term contracts and exports. The price revision will be effective for three months.

Since December 2007, HR prices have escalated by almost 50% in the country, with similar trends in the international markets.