Supply-cartel behind steel’s high RM costs: JJ Irani

Q: Is it just a temporary measure (steel price cut) - I heard people saying three months no more yesterday, will you be able to stick to that?

A: To start with, I’m no longer the Chairman of the Indian Steel Alliance and as far as I know, it is been dissolved. I think we are all talking about increases in steel prices but the first thing that we should look at is, what goes behind and why are the steel prices increasing. It is true that everyone is talking of steel because there are so many buyers of steel. But steel price are going up because the inputs into the steel making industry are going up; not many people buy iron-ore or coking coal. So they are not talking about that. But there have been unprecedented increases in these commodity prices and that is why the cost of steel making has gone up and that is the reason of why the steel price have gone up internationally. What has been agreed with the Prime Minister, of course the steel companies will adhere to that.

Q: For how long?

A: They have committed for three months. It all depends on the cost of raw materials and the cost of raw materials was put up towards the end of last year and there is a lag effect and that lag effect is now coming into force, and it is not just in India. But internationally also, steel prices have gone to unprecedented levels. Because there is a very strong cartel between the suppliers of raw material - both coal and iron-ore internationally, and our suppliers have tagged on to their prices. Somebody must look into why has the cost of digging out the raw material gone up, to substantiate such an increase in the cost of raw material, which in turn is putting up the cost of making steel.

Q: We believe that some of the request that the steel companies have put forward as well removing export duties for the steel products - introducing an Ad-Valorem duty for iron-ore - what is your sense of where the government stands on this? Is it just going to be considered you think or there is a chance of some of this going through?

A: I think the government must be realistic. They must look into the cost build-up. It’s very easy to see why the cost of making steel has gone up and if the government feels that steel has to be conserved for the country and I think it should be, then of course steps has to be taken to make it cheaper and the cost of what goes into making steel should be made less. Then the steel makers will be very happy to keep steel in this country and supply it according to the requirements of our customers here locally.

Q: The concern for the stock market is what happens to financial performance. We heard the Chairman of JSW Steel say a couple of days back that the EBITDA margins for all steel manufacturers will remain considerably under pressure for the rest of the year. Do you think that is a likely scenario if there is this crunch from the raw material side and in terms of price in controls?

A: Margins depends on cost. If the cost keep on going up and they will, if the cost of raw material keeps on going up, naturally the margins will be under pressure. But I have no specific comment to make on what others have said.  

Q: The Indian Steel Alliance has dissolved as you said, there were allegations earlier that the steel industry is acting as a cartel, perhaps the reason why many manufacturers pulled out of the alliance. What do you have to say to those allegations that the industry is pretty much a cartel?

A: I was involved in its initiation about seven years back and I can assure you that it was not a cartel, we have always said that it is not a cartel. The cartel is with the raw material producers - there are three large international raw material producers and they control 80% of the iron-ore traded worldwide and they are in a position to impose their prices on the steel industry, which is very fragmented. In India there was no cartel as far as the steel industry is concerned.

Q: So why did the ISA have to be dissolved and why did manufactures pulled out after those allegations from the government?

A: Tata Steel has pulled out three years ago and I had stopped being the Chairman of ISA three years back.

Q: As we understand also, for many of the steel manufacturers who cut in prices are not for long-term contracts, if that is the case do you think it’s going to impact cost significantly for consumers of your product like the auto industry?

A: Of course, long-term contracts also have to be negotiated and re-negotiated and they do reflect the price which is prevailing in the international market, though the long-term contracts are at lower compared to spot prices -they will be one day moving up to fill up the gap. The long-term prices also cannot be kept at the lower levels at which they are at present.