Blow Hot, Blow Cold

WHEN the government fixed a floor price for imported steel last December, it had no idea that it would kick off so much dust in political circles as well as within the domestic industry. By setting two sections of steel producers against each other, the government provoked political turmoil in Parliament, forcing steel and mines minister Naveen Patnaik to try and justify what was actually a commerce ministry decision.

The imposition of a floor price, made ostensibly to protect steel companies against large-scale import of cheap steel, has pitted hot-rolled (HR) coil manufacturers against the downstream cold-rolled (CR) steel manufacturers, each accusing the other of manipulating government policies to its own advantage. HR coils is a basic input for all downstream flat products made by cold-rollers.

Thanks to the Southeast Asian economic turmoil, global prices for flat steel products are near rock-bottom for the past 18 months. As a result, there is little demand for high-priced domestic steel. This has hit the viability of domestic producers, whose input costs have risen by 10 to 15 per cent. In the first nine months of the current financial year, the industry has reported a collective loss of Rs 2,000 crore, with sail of course bearing the brunt of it.

Prices of imported HR coil, for instance, were ruling at $330 to $340 per tonne in the second half of 1997. In contrast, during October-December 1998, they slumped to $210 to $220 per tonne. Imports from cis countries was even cheaper at $175 to $180 per tonne.

To check such dumping, the Directorate General of Foreign Trade (dgft) under the commerce ministry announced minimum import prices for seven steel products, led by a $302 per tonne ceiling for HR coil imports. This was fixed by the directorate taking into account the six-month (July-December 1998) average domestic price movement in Europe, Japan and the US. The biggest beneficiaries of the new price are the large steel companies involved in HR coil manufacture-Tata Steel, sail, Essar, Jindal Vijaynagar, Lloyds Steel and Ispat Industries. Total HR coil sales by these companies in February '99 shot up to 3.13 lakh tonnes. That's a 75 per cent rise in the space of a month, compared to the figure of 1.77 lakh tonnes in January.

Expectedly, cold-rollers are on the warpath. The new floor, which is 50 per cent higher than the average import price for HR coils, has taken away their substantial profit margins. As a result, cold-rollers have charged that the floor price was imposed by the dgft without consulting the finance ministry and despite the fact that the department of revenue was unhappy over its impact on imports.

Commerce minister Ramakrishna Hegde, however, justifies the move on the plea that a minimum price needed to be fixed to protect the interest of the domestic steel industry. According to him, low-priced imports was the biggest menace faced by the Indian steel industry and anti-dumping duties, being country-specific, failed to check the avalanche of imported steel. A floor price, which was applicable to all imports, was the only solution, he said.

Says S.P. Jain, president of the Cold-rolled Steel Manufacturers Association (Cosma) and managing director of the Mumbai-based Jai Corp: "International prices rule around $210 per tonne, but the government preferred a floor price of $302. This has been done at the behest of HR coil makers who influenced the government to manipulate the price in their own favour. They have already hiked steel prices by Rs 1,500 per tonne in the domestic market from January 1, 1999, and announced another hike of Rs 1,000 per tonne from April 1, 1999.This will put domestic demand for steel under further pressure."

The prime steelmakers dismiss this by saying that there was no case at all. Says a top official from sail: "Cosma and the small manufacturers have been getting imported steel at $170 to $180 per tonne which is way below international prices. Some kind of protection has to be built for domestic players. This is widely done in the US under the 'escape clause'. Why is it such a crime in India?" Agrees an official from the Ispat group: "Domestic demand is only of 5 million tonnes of HR coils while India already has capacity for 8.1 million tonnes and another 2 million tonnes is being added by 2000. Shouldn't imports be restricted, if not banned altogether?"

The issue has become extremely politicised now since cold-rollers, being mostly traders, enjoy the protection of the party in power. Bowing to their pressure, the government is apparently considering a lower floor price of $270 to $275 per tonne to strike a balance between the feuding factions. If this happens, the prime steelmakers fear, it might just destroy the government's last attempt to save the ailing industry from going under.