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Rolling over competitionOur suspicions have finally been confirmed. As a report in The Indian Express dated March 25 reveals, the main re...

Written by S. P. Jain

March 29, 1999 12:00 AM IST

4 min read

Rolling over competition
Our suspicions have finally been confirmed. As a report in The Indian Express dated March 25 reveals, the main reason behind the government8217;s move to fix an artificially high floor price for steel imports 8212; roughly 105 above the prevailing international price 8212; was to boost the profitability of the big hot roll HR mill so that they could look more attractive at a time when both banks and financial institutions FIs were examining whether to give them more loans or not. As the report points out, Jindal Vijaynagar, one of the large steel mills in line for a loan from FIs, would have seen its profitability increase by Rs 298 crore in the next six months, primarily due to the fact that the government-fixed floor price for imports would allow JVSL to hike its prices for the domestic consumers. Not surprisingly, this hike8217; in the prospects of profitability of JVSL has been cited by the appraisal note of one of the FIs to extend more loans to the the company. Prior tothe hike, most banks and FIs along with investment banks were reluctant to lend any more funds to the steel companies whose precarious financial position was heightened by the global slump in steel prices.

In January, the mills told all buyers such as us in the Cold Rolled CR industry, that prices would be hiked by Rs 2,000 a tonne immediately. We protested, and held a meeting with the HR coil producers in February in the SAIL headquarters in New Delhi. There, the HR producers said that they had no option but to hike price, but offered us a way out. They would, they promised, hike the prices of galvanised steel sold by them at Rs 1,000 a tonne this would allow us to sell our production of galvanised sheets at a higher rate and improve our margins since around 40 per cent of our production is galvanised steel. They added that they can8217;t raise the prices of CR sheets as they had commited to buyers that they won8217;t increase prices till March at least.

We had no option but to agree. Finally, a compromisewas worked out at a Rs 1,000 price hike. And now, the HR producers are demanding another hike in prices by Rs 1,000 per tonne, taking the final price to Rs 15,200 per tonne. Compare this with the international price of HR coils at around Rs 9,000 per tonne. The HR producers are, in fact, asking for a price much higher than even the floor price of Rs 14,300 per tonne fixed by the Anti-Dumping Directorate. Evidently, this was not the idea of the Steel Ministry. The Ministry wanted to give the HR producers an additional protection of Rs 600-800 per tonne. However, because of the irrational price of 302 per tonne, the HR producers are initially targeting for a Rs 2,000 per tonne increase which they will ultimately raise to Rs 4,800 per tonne. Large mills who produce the HR coils, however, had just one purpose to close down all the stand-alone CR producers such as those in CORSMA. So, instead of increasing their prices of galvanised sheets, they actually reduced them, thereby squeezing the CR producers from bothsides by Rs 2,400 per tonne. Moreover, they know that no one can import any steel even if they hike the price. Though global prices are around 200 a tonne, to import steel under OGL, you have to state that it costs 302. So, if you do, you can be booked for hawala8217; and FERA violations. From reports, it looks like the Opposition will relent on pursuing the charges levelled by FM8217;s former aide Mohan Guruswamy it was he who first exposed this nexus between the government and the HR producers. If the floor import price regime is allowed to continue, it will be disastrous. Apart from the fact that the CR industry will be in jeopardy, the consumer will have to bear the brunt of the higher cost of the end-product.

The author is head of the Cold Rolling Steel Mills Association CORSMA

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