Date:01/04/2007 URL: http://www.thehindubusinessline.com/2007/04/01/stories/2007040102630500.htm

Back Steel firms face pressure on price front

Ambarish Mukherjee

New Delhi March 31 Uncertainty looms large over the pricing of primary steel from April with major producers facing pressure from the Government to hold prices. On the other hand, the demand- supply gap in the market indicates that the market is in a position to absorb an average increase of around Rs 1,000 a tonne for hot-rolled steel, officials in steel producing companies told Business Line.

As a result, the final decision on price hike, which is usually taken on the last day of the month, was still pending and was expected only on Monday, sources said.

In the global arena, international steel producers, led by the largest manufacturer Arcelor-Mittal, have negotiated an increase in the range of $30-45 a tonne with their customers with effect from April, taking the average global price to $610-625 a tonne.

According to domestic steel producers, if they are barred from increasing prices, it may lead to market distortion.

On the other hand, major steel consuming groups, particularly the cold rollers, are of the opinion that another round of price hike at this juncture of high inflation would lead to further increase in prices of consumer as well as industrial goods.

Apart from the Government pressure on account of inflation, steel companies are under pressure from another quarter that had not yet expressed its concern over rising steel prices, namely the Ministry of Heavy Industries.

The public sector undertakings under the Ministry of Heavy Industries together make up the second largest consumer of hot-rolled steel after the Railways. Sources said the Ministry has expressed serious concerns about probable rise in steel prices on the ground that it would lead to increase in cost of capital goods, which would eventually lead to increase in the cost of manufacturing activities that may slowdown the quick pace of growth witnessed by this sector.

On the other hand, steel companies are of the view that while the Government could restrain major producers from increasing prices, hot-rolled steel is mostly used by cold rollers as their raw material and all consumer goods such as furniture, air conditioners, automobiles, refrigerators, doors, windows etc uses cold rolled steel.

"While it is easy to control the primary producers who are small in number, it is actually the prices of the final product that contributes towards inflation. Since end-users are extremely fragmented with thousands of manufacturers, controlling the raw material suppliers would not really serve the objective of curbing inflation," a senior official in a steel manufacturing company said.