Firms to cut steel prices

The government asked steelmakers to cut prices to help curb inflation that's running at close to a high of more than two years. Steelmakers agreed to lower prices of hot-rolled coils by Rs 500 ($11) a tonne to Rs 27,000, said R S Pandey, secretary at the steel ministry. Prices of bars will be reduced by as much as Rs 700 a tonne, he said.

The ruling Congress party, which lost two state elections last week as inflation eroded the spending power of the people, has since January cut taxes on commodities including edible oils and cement, lowered fuel prices, and banned futures trading in wheat to quell protests against spiraling prices. A recovery in global steel prices may make it difficult for domestic producers to hold rates for long, an analyst said.

"It will be tough to keep prices artificially lower with global rates having risen to as much as $600 a tonne,'' said Swati Agrawal, an analyst at Prabhudas Lilladher, a Mumbai-based brokerage. "This is not going to make me change my ratings on steel stocks as I don't see it last for long.''

Steel prices in Asia and Europe have risen amid increasing demand and expectations of industry consolidation after Mittal Steel bought Arcelor SA last year for $38.3 billion and Tata Steel acquired Corus Group Plc for $12 billion in January.

Tata Steel, Essar Steel, JSW and Jindal Steel & Power were among producers that raised prices on March 1.

"The government has expressed concern about the impact of the price increases on the common man and on inflation,'' Pandey said in New Delhi. "We thought there is need to talk to them (steelmakers) and they decided to roll-back prices.''

Pandey said the profitability of steel companies would not be affected by the reduction.

He also ruled out the appointment of a regulator to check steel prices in the domestic market and said as and when concern is expressed on any issue, the matter is taken up with the relevant authorities.

The BSE Metal Index of 13 companies, including steelmakers, slumped 5 per cent in response to the 4.2 per cent decline in the benchmark Sensex. Tata Steel fell 5.2 per cent to Rs 420.2, while Steel Authority of India and JSW Ltd each dropped 9 per cent to Rs 96.5 and Rs 427, respectively. Essar Steel fell 7.5 per cent to Rs 35.7.

Record economic growth, boosted by the fastest increase in bank loans in more than three decades and higher salaries, have stoked demand for industrial and farm commodities. Cement prices have climbed 30 per cent since April 2006, while hot-rolled steel, a benchmark grade, is 25 per cent higher from a year earlier.

Inflation, running at 6.05 per cent, has stayed above the government's tolerance level of 5 per cent since September and the central bank may raise its key overnight lending rate next month for the second time this year to curb prices.

"The government owes responsibility to the people to avoid unreasonable'' increase in prices, Finance Minister Palaniappan Chidambaram said in New Delhi today. "Industry must cooperate in moderating inflation. We are confident that we will moderate inflation.''