The union steel ministry's success in persuading major Indian steel producers to roll back prices is likely to be shortlived.
Another round of price rise, this time by a sufficient margin so as to leave room for a token rollback, is likely to occur next month, going by the mood in the industry.
Major steel makers raised prices by around Rs 2,500 per tonne in the beginning of the month and then brought them down by Rs 500 to Rs 1,000 last week in response to a request by Union Minister of Steel Ram Vilas Paswan.
TMT bar and round prices have been reduced by Rs 1,000 per tonne and other steel products by Rs 500 per tonne. "Other products" does not mean all other products but products of a manufacturer's choice among the others.
All that the present rollback is likely to eventually achieve is create a window of windfall gain for secondary producers and dealers who are not bound by the rollback decision.
They have begun to cash in on this as the rollback has taken place but market prices have not come down commensurately.
The rollback should help large buyers who acquire directly from manufacturers but even here the impact is marginal as such buyers usually have long-term contracts that are unaffected by either the immediate price rise or the rollback.
The rollback is unlikely to last for the same reason as prices were raised in the first place - a sharp rise in input prices for steel makers.
This process is likely to continue as NMDC, the major public sector iron ore producer, has itself publicly foreseen a 50 per cent rise in prices in April.
What is more, international prices are also expected to go up as most of the global majors, including Arcelor Mittal, the world's largest steel maker, have announced hikes in the wake of input cost rises.
According to some producers, hot rolled coils, which were seen heading for $800 per tonne towards the beginning of the year, are now seen targeting $900 to $950.
Moosa Raza, president, Indian Steel Alliance, whose members control around 65 per cent of the total production, said around 43 million tonnes of steel production would be affected by the partial rollback.
Raza added that no one benefits from these rollbacks. "The steel companies lose money and the reduction is enjoyed by the middlemen (agents) who don't pass on the reduction to the consumers."
The reduction has created disaffection between players within the industry as it does not affect all players equally.
A steel producer said under recovery will hit most the bottomlines of companies without captive mines as they have no cushion against input cost rise.
Among the public sector steel producers, Steel Authority of India Ltd is covered 35 per cent for coking coal and 100 per cent for iron ore through captive sources. On the other hand, Rashtriya Ispat Nigam Ltd, the other PSU, has no captive mines.
Among the major private producers, Tata Steel with Corus has 20 per cent iron ore security and 15 per cent in coal, JSW Steel has 30 per cent iron ore security and imports 100 per cent of its coking coal.
Essar Steel's only captive raw material resource is the 1.4 billion tonne reserves via its acquisition of Minnesota Steel which is yet to be commercially developed, while Ispat Industries has no captive mines.
Since last October, on an average, there has been a cost push of Rs 5,000 per tonne, on account of which steel prices were raised in January by Rs 600 to Rs 900 per tonne and again in February.
"There appears to be a shortage of iron ore and this is likely to continue for the next couple of years," said a producer, adding, "with such cost pressure and a check on prices, it will be difficult to survive."
