Steel, cement celebrate but retail prices won’t change

While the Railway minister has sent share prices of heavy industry, steel, cement and coal sector companies flaring up, the aam admi should not interpret that to mean lower retail prices.

While the Railway minister has sent share prices of heavy industry, steel, cement and coal sector companies flaring up, the aam admi should not interpret that to mean lower retail prices.

The 5 per cent reduction in transportation rates for petrol and diesel announced by Lalu Prasad Yadav could help oil companies shave Rs 100 crore off their annual bill. But the reduction is too little to warrant a cut in consumer prices of petrol or diesel, according to company sources. In any case, with a bulk of oil transportation having moved to pipelines, industry leaders said it was difficult to see the measly 1.14 per cent growth rate for POL transport by railways being improved on.

Steel sector companies too said the 6 per cent reduction in freight charges for iron ore would lead to a reduction in transportation cost by about Rs 40 a tonne. But there is no likelihood of any reduction in prices of finished steel as a result, they added. However, the minister’s sops promptly turned around the four-day losing streak on the stock markets, with both the BSE and NSE ending in positive territories.

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Cement companies said the railways’ plan to freight 200 million tonnes by 2011-12 was good news. Currently, 35-40 per cent of total cement production is transported by rail. The government plan will mean that percentage will rise to 80 per cent.

Analysts say this will help cement players cut freight costs in the long run as cost of transporting by road is substantially higher. However, many cement players were disappointed that there was no cut in freight rate on cement itself.

Meanwhile, market experts feel that the reduction in freight rates will benefit steel companies. “The freight rate cut for iron ore and limestone will reduce the cost of raw materials for steel companies, lower manufacturing cost and increase operating margins considerably,” said Manish Sonthalia, vice-president, market strategist & portfolio manager at Motilal Oswal Securities.

The steel industry too gave thumbs up to Yadav’s rebates and plans, saying the Budget makes a shift from passenger-related issues to economy-related issues.

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“Basic freight rate on iron ore would support our topline while the promise for new railway lines to new steel and power projects is also a positive initiative,” said Essar Steel director J Mehra. he said the freight rate cut would reduce iron ore costs by Rs 40 per tonne.

Sector behemoth SAIL described the budget as growth-oriented and anti-inflationary. Chairman S K Roongta said impact of freight reduction and railway fare concession on the company is likely to be around Rs 70 crore annually.

“Growth plans of steel industries will need substantial improvement in railway infrastructure and will get strength from this year’s budget and the minister’s intentions of improving rail infrastructure,” he said.