Steel under spotlight as price inches towards pre-Covid level

Fimi, EEPC raise issue with the govt over price hike, saying domestic market rates are higher than export prices

There is a growing clamour against an increase in steel prices effective from this month. 

A few days back, the Federation of Indian Mineral Industries (FIMI) wrote to Prime Minister Narendra Modi, seeking a price monitoring and regulation mechanism for sale of steel by integrated steel producers. 

This came on the back of Engineering Export Promotion Council (EEPC) India raising the issue of increasing domestic steel prices with the government. EEPC India Chairman Mahesh Desai said the council had presented its case case had been presented during the series of meetings held with the government.

“Main steel producers are exporting at every competitive rates but in the domestic market, prices are much higher. This is making exports of final products by MSME units, who have a requirement of 1 million tonne, uncompetitive,” he said.

“The government is working out a policy framework but time is running out because every month steel prices are increasing,” he added.

At least three major producers confirmed having increased prices by around Rs 2,000; in select grades, it’s higher. Others are expected to follow.

Steel producers’ body, Indian Steel Association (ISA), contends that inputs costs have increased.

Dilip Oommen, president of ISA and chief executive officer of AMNS India, said domestic steel prices were still lower than pre-Covid levels, even after price correction. 

“If we compare domestic iron ore prices, it has zoomed past pre-Covid levels. Since June, Odisha prices have increased by 58 per cent and NMDC prices by 40 per cent.”

However, after the increase initiated by some producers this month, it is now around pre-Covid levels. Though it would still be much below the peak level of Rs 46,000 level for hot-rolled coil (HRC) in November 2018. 

HRC prices at the end of August were at Rs 38,750 a tonne, and a Rs 2,000 a tonne increase takes it past Rs 40,000 a tonne. The last time this price level was achieved was in July 2019.

A producer pointed out that international prices had gone up by $120 a tonne after June 2020 and domestic steel prices started moving up from July, after dropping by close to Rs 3,000 a tonne over April-June.

On FIMI’s demand for a price monitoring and regulation mechanism for steel, Oommen said the sector was one of the first to be deregulated in 1991. 

“So, why and how can there be a price monitoring and regulation mechanism? Prices need to be determined by market forces in a free market,” he said.

FIMI has also requested for complete withdrawal of import duty on steel for the benefit of downstream industries. But Oommen countered, import duty removal was not in line with Atmanirbhar Bharat. 

In any case most imports are from FTA countries, where import duty is not applicable, he pointed out. 

He said domestic steel producers were not on the same level-playing field. 

“The taxes and duties in India, which are not convertible, are very high compared to global standards. According to NITI Aayog report, there is at least a $80/tonne disadvantage that Indian players face. This is why ISA and the steel industry have been batting for BAT (Border Adjustment Tax) and RoDTEP (Remission of Duties or Taxes on Export Products, an export incentive scheme),” Oommen said.

This is not the first time that there is noise around steel price increase, however. In 2008, chief executive officers (CEOs) of major steel companies met then Prime Minister Manmohan Singh, and in accordance with advice, reduced prices and decided to hold it at the level for three months. 

Commodity prices were at peak levels then, which came crashing with the global financial crisis.

Oommen said if steel prices needed to be corrected, the underlying causes had to be addressed. But even as prices are on the rise, its sustainability is under question.

ICRA Senior Vice-President Jayanta Roy said domestic HRC prices had increased by Rs 4,000 per tonne from the lows of July 2020, and are reportedly poised for another increase in September. 

“This is on the back of increasing international prices as well as rising export volumes. However, a broad-based recovery of domestic demand will be necessary to keep domestic steel prices at elevated levels. The trend in currency rates too will be important since domestic prices tend to align themselves with landed costs,” he said.