Under intense cost pressure, the steel industry might have to take a re-look at prices.
Suggesting this in an interaction with journalists from The Hindu Group here on Thursday, S. K. Roongta, Chairman of Steel Authority of India Ltd. (SAIL), said the industry had given a commitment to the Government to hold the price line for three months up to June. “Beyond that, we will have to review our prices,” he said.
“Cost pressures are really enormous,” he said. In this context, he pointed to the big spurt in the prices of coking coal globally caused mainly by the flooding of coal mines in Australia. Coking coal prices had gone up by three times within one year from $96-98 to $300-305 a tonne now. In India, too, the prices had shown an upward trend from January to March. In fact all cost elements such as ocean freight rate, internal freight rate and fuel prices had been rising. ``There has been a 100 per cent rise in input costs in one year. These are unprecedented times. We have not seen such major movements in raw material as well as steel prices in such a short time,” Mr. Roongta said.
Despite these pressures, the ``domestic steel prices are almost 25-30 per cent lower than international prices. Even in long products, prices are about 20 per cent lower than the global prices,” he pointed out. Mr. Roongta said the cost push was backed by a strong demand in all the markets, driving the prices further up. ``This is not good news for [the] consumer,” he said. The steel industry, he said, would have to search for measures to moderate the impact of cost pressures on the end consumers.
``Steel is a happening sector not only in India but globally,” he said. Global consumption passed 1,200 million tonnes in 2007. The consumption was estimated to grow by 6.7 per cent in 2008 and by 6.3 per cent in 2009. ``The last five years have been eventful for the global steel industry with all the regions clocking some growth,” he said. He estimated the global steel capacity to go up significantly to almost 1,800 million tonnes by 2010. China had been contributing to almost 80 per cent of the new capacity. In the next four years, its share would come down to 50 per cent, he added.
In India, steel consumption had been growing in double-digit in the last three-to-four years, riding on strong demand from construction, manufacturing, white goods and capital goods sectors. However, the increase in production had not kept pace with the rising demand. Consequently, India had become a net importer of steel.
The year 2007-08 ``has been a year of significant achievement for SAIL,” he said. ``We have crossed a new landmark in production by touching 15 million tonnes of hot metal, 14 million tonnes of crude and 13 million tonnes of saleable steel.” The capacity utilisation of 118 per cent was the highest ever achieved by SAIL. The previous high was 114 per cent. SAIL has increased the production of special quality and value added steel by 30 per cent.
To a question, Mr. Roongta said, ``I don’t think we have made a windfall profit.” A PAT (profit after tax) of 20 per cent ``is not a windfall,” he said. In this context, he said in its 50 years of existence SAIL was selling steel at administered prices for close to 32 years. ``Profits are not bad provided they are used for productive purposes,” he added.
SAIL has chalked out a plan to modernise all its five integrated plants and expand capacity.
“We propose to take our capacity from the present 14.5-15 million tonnes to 26 million tonnes,” he said. It was also planning to convert Salem Steel into an integrated plant with a capacity of two lakh tonnes.
Mr. Roongta said SAIL would also invest significantly in its mines, so as to extract more iron ore. The expansion initiatives would entail an investment of around Rs.550million in four years. The Chairman said SAIL would go in for an appropriate debt option, even while ruling out equity funding.
On IISCO steel plant (ISP), now a part of the SAIL family, he said, the company had `truncated operations’. With fresh plans such as installation of coke oven batteries, blast furnace and sinter plant, he expected ISP to break-even in the current year.
Source: The Hindu
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