Steel prices not the major cause of inflation: Essar Grp

J Mehra of Essar Group agrees with the government on its concern for rising inflation, although he does not believe that the steel prices are the major cause of inflation. 

He said that the company's margins would suffer owing to the price cut. Mehra added that steel companies requested the government to cut down the prices of iron ore supplied by government owned companies as well.

Excerpts from CNBC-TV18's exclusive interview with J Mehra:

Q: If all factors were to remain the same and on account of these, steel price cuts we are seeing in flat products and in steel bars and rods what do you feel would be the margin impact on most of your large steel companies going in for these next quarter as this price reduction has happened for the next three months itself?

A.The price cut will certainly affect the margins. If one looks at the last quarter result of steel companies that do not own their own resources like coal and iron ore, they have posted results which are less than what they have been posting before the price rise which occurred in the last six months. Obviously this will further aggravate and have an impact on their bottom lines.

Q: Three companies came up with statements that they are going to cut prices, you also are following in?

A: We appreciate the government’s concerns on the rising inflation. Though the steel has a very limited effect on it, as a good corporate we have agreed to reduce the price by Rs 4,000/tonne on the flat products.

Q: The roll back of export duty also therefore is confirmed?

A: We have made a submission to the government justifying why the prices have increased, there were very valid grounds for increasing the price. The government promised that they would consider all the issues that have been raised by the steel companies including, not implementing of export duty.

Q: From all the demands you have placed to the government, the rollback in export duty, cut back its freight charges, the linkages to Coal India as well as that ad valorem duty on iron ore exports, which sort of the demand will be the most dear to the steel industry and which will benefit you all the most?

A: The steel producers as well as the government came to an agreement that these measures would only be temporarily implemented. In the long-term structural corrections, need to be done in order to improve the supply line for which the steel companies have requested the government to give wherewithal to make investments like acquisition of land, iron ore deposits, coal deposits etc.

These are the most important things. Going forward, the rate at which the steel demand is growing at 10%-12% we are short of 5 million tone of steel every year. So this is only at the beginning of the problem. Therefore the government has to take very a quick and expeditious view on correcting the long-term demand and supply situation of which the government is fully aware.

For the steel companies to cope with the price cut and to sustain inflation at the same time, we have requested the price rise in the iron ore by the government’s own companies to rolled back.

Q: Given the combined impact of the price pressure as well as the raw material price surge can you give us an idea of what the steel margins will be for your company in FY09 as opposed to FY08?

A: Rs 4,000 per tonne less of our three months production.