HR import price fixed to benefit Ispat, Lloyds, Jindal

Speaking to newspersons here today, the Chairman of Cold Rolled Steel Manufacturers Association of India (Corsma), S P Jain, alleged that the floor price was fixed to benefit Jindal, Ispat group and Lloyds Steel, which have excess capacity of around 10 lakh tonnes. Essar Steel does not have any excess capacity in cold roll coils, whereas Sail caters to small manufacturing segment, which does not face any competition from Corsma members.

When asked whether they are substantiating the charges of theformer adviser to the finance minister, Mohan Guruswamy, Corsma Vice Chairman Umesh Shahra evaded direct reply, stating that the floor price was fixed at the behest of private hot roll players.

Corsma refuted the arguments of hot rolled manufacturers that the floor price was fixed on the basis of the average price ruling during the first quarter of this fiscal at the London Metal Exchange (LME).

Stating that LME does not deal with non-ferrous metals, Jain pointed out that the reference given by HR coil manufacturers is entirely baseless. The CIF value at $ 302 per tonne was in fact put in place on the basis of freight on board (fob) prices for the first quarter of this fiscal indicated in the metal bulletin, a journal published in London.

However, prices published in the journal are only list prices of an indicative nature and not the actual selling prices for the bulk purchases, Jain said. The prices also include exporters commission of $ 10 per tonne, but excludes substantial quantity discounts forlots of 1000 tonnes and above, imported by the steel industry.

The actual CIF import prices during the first three months of this fiscal from Europe and Japan ranged between $ 234 to 260 per tonne, the Corsma Chairman said.

Besides, HR coil producers had held that the CIF value of $ 302 per tonne is in conformity with the price range of $ 200-300 per tonne fixed by the United States for imports from Russia. However, customs duty in the United States in only four per cent, whereas in India it stands at 33.5 per cent. This makes landed cost of HR coils imports at $ 400 (Rs 17,826) per tonne in India against $ 296-313 per tonne in the United States for the Russian imports.

The three HR manufacturers — Ispat, Lloyds Steel and Jindal — are into the business of CR coils and galvanised plates as well. The stand alone CR coil manufacturers, on the other hand, have around 26 lakh tonne of capacity, whereas the domestic demand is only 20 lakh tonnes.

Jain said HR coils manufacturers have raised the price ofHR coils by Rs 1000 per tonne subsequent to fixing of the floor price. When Corsma objected, HR coils manufacturers assured them at a meeting on February 19 that they will also increase the price of a product (GPS) by Rs 1000 to have a fair competition with CR coil producers.

However, GPS price was reduced by Rs 500 per tonne in February and Rs 900 per tonne this month. Added together with increase in HR coils, the total additional burden on CR coil manufacturers has increased to Rs 2,400 per tonne.

After increase in the price, HR coils are sold at Rs 14,000 to 14,200 per tonne excluding excise taxes, while CR coils are sold at Rs 18,000-20,000 per tonne. The cost of running a unit for producing CR coils comes at around Rs 7,000 per tonne, which makes it entirely unviable to be in the business for stand alone CR manufacturers, the Corsma Chairman said.

Besides, floor price at $ 302 per annum, which makes the landed cost of imported HR coil at about Rs 17,826 per tonne has made it impossible for CR coilto import the inputs.

The floor price has virtually banned imports, whereas given HR coil manufacturers a leverage to increase the price of their products and decrease the price of GPS, pushing CR coil producers at disadvantageous position. In fact, pricing policy of integrated coil producers have resulted in cash loss of Rs 2,000 per tonne excluding depreciation by CR producers.

With this background, Corsma members has urged the steel minister and other officials during several meetings to abolish the scheme of floor pricing and instead get special import duty at the rate of five per cent imposed on all steel products.

If it is impossible to abolish the floor price, the government should peg it at $ 240 per tonne which will make landed cost of HR coils at $ 316 dollars per tonne which is in line with the prices fixed by the United States for imports from Russia. This floor price will also be in conformity with floor price of Rs 14,300 per tonne fixed by the anti-dumping directorate on November 18 last,hardly a month before the notification pegging the floor rate at $ 302 by the Directorate General of Foreign Trade.

Jain said the steel ministry has reportedly worked out a solution by proposing fixation of floor price at $ 272 per tonne. However, this would also be unacceptable to them and their stand would be indicated to the joint secretary in the steel ministry at a meeting.

Fixing of the floor price of HR coil imports has created fissure between HR coil manufacturers and CR coil producers. While the former is lobbying for maintaining the floor price, Corsma is arguing for scrapping it altogether or lowering it to $ 240 per tonne.

Earlier this month, HR coil manufacturers had justified the floor price at $ 302 per tonne, stating that it was arrived at on the basis of LME prices for the first three months of this fiscal. They had stated that the average LME price for HR coils works out to $ 282 per tonne. A freight plus insurance element of $ 20 has been added to arrive at the floorprice.