Low domestic prices will ensure more steel exports: SAIL

Q: The government seems very concerned about the inflation locally, the reason why you have to roll back partially the price hike that you had taken. Do you think you will be able to raise prices against the wishes of the government and if not, would you have to sacrifice margins this year?

A: The government has to take into account a realistic situation of the market. If the steel prices are rising globally, and we are today aligned to the global steel market and import duties are just only about 5%, which are almost equivalent to duties in the developed world. So we can't be insulated from the global situation and eventually, the prices will have to align with global prices.

Q: So you are saying that more steel makers have that levy right now that if indeed, raw material prices go up a bit more, you can cancel this rollback and increase or bring in another price hike on steel prices?

A: We are having a full year ahead, right now we are only in February 2008, and the FY08-FY09 is just about to begin. So we cant say these prices are going to remain stationary throughout 2008-2009 and as the situation unfolds, obviously steel makers will also have to take a call with regards to their prices, especially the global market situation.

If it doesn't happen then there will be incentives to export more steel because if global prices are high and steel prices are depressed artificially here, more exports will take place which will create more problems on the supply side.

Q: What are you expecting the budget to throw up for the steel sector this time?

A: We don't have very specific expectations, especially for the steel sector. Of course, some corrections on the raw material custom duties where our ministry has recommended to the Finance Ministry for a reductions in duties of med coke and scrap. But we certainly expect a big push to the infrastructure sector which will be the biggest help to the steel industry. We are also expecting that wherever duties are higher on the raw materials, as compared to the steel, those duty structures will get corrected.

Q: What's your reading of the global situation of demand supply and the pricing for steel. You spoke about prices going up, there has been some apprehension that the US Led slowdown might actually curtail demand and may lead to flattish steel prices this year. Is that a legitimate concern or you think steel prices will be firm?

A: The situation so far doesn't reflect that concern. The IISI in their forecast of steel consumption and production have given a number of 6.8% growth in calendar year 2008. If you go by the demand in the first quarter of 2008, the global steel demand continues to be very strong. While we cant say that ultimately if the US goes in to some kind of a recession, that it wont impact the steel demand at all, but primarily, consumption is also driven by other countries especially China and other emerging markets. I suppose the overall demand for steel globally, in 2008, also will remain healthy. There are certain corrections on the supply side also, China is phasing out some of its uneconomic capacities, so that will even out the supply and demand. We expect a good demand and price situation in 2008.

Q: So for this calendar year, what do you expect to see for world prices by way of a quantum in increase. Analysts wary from as low as 4% to as high as 10-12%?

A: Already in the first quarter, price increases has been announced ranging from 5% to 10% or 11%. Going forward, if iron ore prices and coal prices get settled at the higher band which people are talking about now, 65% for iron ore and coal anywhere between 70-100%, if that happens then there will certainly be a further cost push and pressure. Down the line, even in the remaining three quarters, prices may inch up still further. In fact, in some of the markets, steel is already touching the USD 1,000/mt tonne mark.