Steel makers bend, tell PM we will cut prices by Rs 4000 a tonne

Thu, May 8 02:42 AM

Steel companies, battling government allegations of cartelisation and stoking inflation, today offered to cut prices across the board after a meeting with Prime Minister Manmohan Singh.

The index of iron and steel products has only a 3.64 per cent weight in the wholesale price index, but has a significant cascading effect on sectors such as construction, automobiles and white goods.

After meeting the Prime Minister, S K Roongta, Chairman of state-owned steel major SAIL said, "We endorse the government's concern on steel prices contributing to inflation. Major steel producers have decided to reduce prices of flat products by Rs 4,000 per tonne and prices of rebars and structural steel by Rs 2,000 a tonne and hold these prices for the next three months."

Reduction in prices of flat products will primarily benefit auto and consumer durables sector but the impact could be partial as it will not be applicable on long-term supply agreements.

The lower prices of rebars and structurals will benefit the construction sector. "We need to see if this helps us though a reduction in spot prices will definitely have an impact on long-term prices as well," an auto industry insider said, adding it will definitely benefit small auto component makers who buy spot.

Steelmakers said they will incur losses to the tune of Rs 1,600 crore, but would take it in their stride. "For three months, we will live with lower margins but we are not very concerned since it is a temporary measure," said an ISPAT Industries spokesperson.

Besides Roongta and Tata Steel Managing Director B Muthuraman, the chiefs of JSW Steel, Essar Steel and Ispat Industries too met the Prime Minister, who was flanked by Finance Minister P Chidambaram and Steel Minister Ram Vilas Paswan.

Vice chairman and Managing Director of Ispat Industries Vinod Mittal told reporters the government had assured them of putting on hold the notification for implementing export duty on steel. The government had recently decided to impose a 15 per cent duty on steel exports to address the domestic demand-supply mismatch.

At the meeting, the industry voiced its concern over unabated export of iron ore out of the country. While India produces about 180 million tonnes of iron ore, almost 100 million tonnes is exported. "We apprised the PM of our concerns regarding raw material prices like coking coal and iron ore and have requested him levy an ad valorem duty of 15-25 per cent on export of iron ore and 25 per cent on coke," said another company representative who attended the meeting.

Steel prices have jumped almost 50 per cent during the past one year, augmenting inflationary pressures on the economy. Many infrastructure projects had to suffer a sharp drop in margins or had become unviable because of soaring steel prices, said DK Joshi, principal economist, Crisil.

While a cut in prices will have a sobering impact on inflation, it will take a while to reflect in the WPI, Joshi said. "Last time the steel prices were reduced, they had virtually no impact on inflation. The problem is construction prices are not directly taken into account while calculating the WPI-based inflation," he added.

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