Monday, November 29, 1999

`It`s not possible to control steel prices physically`

News posted by www.newsinfoline.com

SK Roongta, chairman, Steel Authority of India Ltd (SAIL), has successfully steered the company through the days of the global economic crisis which also saw steel prices plummeting to historic lows. Under his leadership SAIL managed to have the highest profit margins amongst all the steel companies globally in the first six months of the 2009-10 fiscal. An engineering graduate from BITS, Pilani and a post-graduate in international trade from the Indian Institute of Foreign Trade (IIFT), New Delhi, Roongta started his career in SAIL as a marketing executive in 1972. In an interaction with the Express staff, Roongta discussed the steel industry scenario globally as well on the domestic front. Excerpts:How do you see the Indian steel industry growing in terms of domestic demand?The domestic steel industry has grown at the rate of about 9-10% in 2009-10 and in current fiscal (2010-11) the industry is likely to grow by 12-14%. Apart from China, India is one of the few countries that have witnessed growth during 2009-10. In the calendar year (CY) 2009, China's steel industry witnessed more than 20% growth, according to the data released by the World Steel Association.Globally after a great dip, post-meltdown the overall steel industry has started looking up. The projection is that globally the production and consumption of steel will grow by 11% in 2010 compared to the previous year which will be higher than the peak level that was achieved in CY 2007. The estimated growth should happen as the first quarter of CY 2010 has already seen about 28-30% growth in the sector. This is primarily due to the fact that the growth in Q1 during 2009 was very low. The second quarter of CY2010 will also be high and then it will taper off.Now for India, if we look at the Chinese steel industry growth and the growth in consumption level, from the point of view that steel is a basic material for infrastructure and industrial purpose for the general construction for appliance, auto hence we will see a robust growth in the steel sector for the next 10-15 years. At present, our per capita consumption is about 50 kg. It is generally believed that the per capita consumption in the developed nation goes up to 600 kg and from there on it tapers off. In case of India, the outlook is that it may take 50 years for the country to attain such consumption levels as the population may also go up. So it is not possible to predict to what level the consumption can go up.What is the steel prices scenario like?Steel prices were at their historic peak in 2008 when the prices of raw materials were very high. Then the global demand was very strong and capacity utilisation of steel industry was one of the highest. Post-meltdown, the prices fell from the peak to almost one-third levels. However, steel prices have started moving up in the current calendar year backed by higher prices of coking coal and iron ore. The spot iron ore prices have soared due to more than expected rise in the Chinese steel industry and on increased demand. At one point of time, China was the net exporter of coking coal and now it is the net importer of the commodity. In 2009, China imported more than 35 million tonne of the commodity which finally changed the coking coal scenario. There was shortage of coking coal in the global market, especially hard coking coal. Then on steel companies have been pushing for better pricing as prices of iron ore and coking coal put together were higher than the input cost that was in 2008. Meanwhile, prices of finished product were 40% lower. Coking coal prices were around $350 in 2008 compared to $250 at present and that of iron ore was $200 per tonne against $105-$110 currently. In fact, input cost of steel today is higher than it was in 2008. At that time when prices were low, margins were high.What's your assessment regarding steel prices in India?As far as India is concerned, there has been a substantial increase in steel prices over the last three months. The increase in December 2009 and January 2010 has offset the impact of the input cost. There is consumer resistance to further price increase but ultimately the pattern of global prices is still followed here and so we will also depend on the same.But what about price controls? The government keeps talking about it.It is no longer possible to control prices physically. In 2008, the situation was alarming for the government as the steel was contributing hugely to the double-digit inflation. Steel had an overall weightage of over 5-6% in WPI and there was a sudden rise in the steel prices to almost 100%, which impacted the WPI. But, eventually government had to resort to only certain fiscal measures. They brought down the import duty to zero, imposed some export duty, lowered excise etc.But recently also the steel ministry convened a meeting of the steel producers to discuss the pricing issue. Was any price control hinted at?The meeting did take place. The industry gave its opinion on the outlook of the steel sector. The consent was that prices could be increased, but not aggressively. In the next three months prices could move in the 5% range, which could go upward or downward.

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