Can Indian steel prices be at par with China?

India's wholesale price index, released weekly, hit 7 per cent for the year up to 22 March, the highest since December 2004.

The sharp spring up in index for minerals and basic metals is beginning to show its impact on overall inflation and it has risen by 38 per cent compared to previous week alone.

Industry experts insist that rising steel prices are triggered by rising input cost like scrap, iron ore and coking coal. The main area of concern is iron ore where the country is currently in surplus yet prices are touching the roof, with escalation of over 100 per cent during the entire fiscal 2007-08.

The current international pricing scenario demands a prices increase domestically. The rising raw material costs and other available inputs as well as limited capex resources have driven the steel prices.

The government has been taking steps to control prices by increasing the export duties on some commodities and even banning exports on some.

The commerce ministry is of the view that any reduction in steel export duties will not help unless steel producers reduce the base price, on which the excise duty is calculated.

Although the finance minister, in the Budget, lowered excise duty on steel inputs from 16 per cent to 14 per cent, there has not been any reduction in prices. Instead prices have gone up.

The commerce ministry is proposing that the government should come out with a price stabilisation scheme and continue it till domestic prices are at par with that of China. The report made the following comparison of domestic prices in India and China.

After a high profile meeting between the steel secretary and top steel producers on Thursday, the industry has agreed to roll back prices across important steel categories.

• Tata Steel, SAIL and Ispat have cut prices of Long product by Rs 2000/tonne.
• RINL, Essar Steel, SAIL and Tata Steel have also agreed to cut prices of galvanised steel by Rs 500-1000/tonne.
• Steel makers have put forward a demand that the excise duty on input commodities of steel to be brought down from 14 per cent to zero per cent.
• Steel producers have not committed to any cuts in prices of other flat products (HR coils, HR plates, CR and CRCA).
• The government has proposed Rs 400/tonne subsidy for transportation of steel
  

Government intervention in controlling prices to curb inflation is not a good sign for the steel industry. Companies having their own captive mines for coking coal and iron ore will be best placed in rising raw material situation.

Renisha Chainani is a Research Analyst with Anagram Comtrade Ltd.