Govt wants steel cos to curb profiteering

By Vivin Fernandes /CNBC-TV18

 

Steel producers are not just passing on costs, they are making huge profits says Steel Secretary R S Pandey. With fat profit margins, he thinks, they can absorb some the increases in raw material costs till the current inflationary situation passes over.

 

When Prime Minister Manmohan Singh told steel producers to be socially responsible from the platform of a company that has a reputation for being socially responsible, he was not telling them to be charitable. He was reminding them to be a little less opportunistic in a market where demand is running ahead of supply. The Steel Secretary quotes the example of Rashtriya Ispat Nigam , or RINL, a state-owed company that has no captive sources of raw material and buys them entirely from the market, as a representative example.

 

"The cost in the case of RINL has gone up by Rs 5,000 a tonne, but prices have gone up by Rs 12,000," Pandey said.

 

Steel input costs in the last nine months to December last year have risen 68-100%, according to information provided to Parliament on Thursday. Parliament was also told that between January and December 2007, SAIL's cost per tonne of crude steel has declined marginally, while that of Tata Steel has risen, but by lesser than that of  Jindal Steel .

 

But during the same period, the operating profit margin of Tata Steel was 42%, while that of SAIL was 30%. Indian steel producers are currently charging about USD 900 a tonne of hot rolled coils, much higher than rates prevailing in China and Korea.

 

" Posco , which is the largest supplier in South Korea, recently raised prices of hot rolled coils by 21%, but they are selling at USD 704 a tonne," Pandey said.

 

After the Prime Minister's request earlier this week, SAIL said it would refrain from a price hike and so did Tata Steel. But the cheer has not seeped to Mandi Gobindgarh, a re-rolling hub in Punjab when we spoke to buyers on Thursday.

 

Rakesh Sahi of Laxmi Steel Rolling Mill, said, "The main producers announced that they would keep rates stable for three months so we placed an order for 1,500 tonne per month for three months. But they have replied that they cannot supply as there is no stock."

 

Rajneesh Ahuja of Rajneesh International said, "Tata Steel had announced that they would not increase rates for two months but on March 14 they increased the prices by Rs 6,130 with effect April 1. SAIL and others have not raised their prices."

 

While steel producers are said to be acting in concerns, the government itself is not. This why there is no fix on whether to cut excise and import duties on steel or raise the export tax on iron ore.