Dual steel pricing to fuel price hikes

Dual pricing in steel, as mooted by the Centre, is likely to fuel price increases once implemented, according to industry sources.

The Union steel minister recently announced that hot-rolled (HR) products, used as input material for cold-rolled (CR) products, would get a favoured price in a bid to boost exports. However, HR steel for the domestic market would be sold at a higher price.

Though the ministry has in-principle agreed to go for dual pricing, the date for implementation was yet to be announced.

Industry sources said the move was likely to fuel HR prices as there is already a shortage in the domestic market. Premiums of steel products range between Rs 700 and Rs 2,000 a tonne, depending on the brands, indicating that the demand was more than the supply.

The biggest beneficiaries of the dual pricing would be manufacturers exporting CR products, namely the mid-level companies, barring a few.

Moreover, industry was apprehensive that the incentive for exports would redirect products to the export market and this would create a further shortage in the domestic market. The target for exports in 2004-05 was around 4.5 million tonne.

Industry sources said there appeared to be a dichotomy in the government's move as, on the one hand the government's priority was the domestic market, while on the other, the dual pricing went completely against the stance. However, they reconciled the government's aim to become a major global player could have led to this decision.

With the ongoing construction boom, if products were diverted to the export market, then there would be acute shortage in the market. Long products still command a premium despite the recent price increase initiated by Steel Authority of India Ltd (SAIL) and Rashtriya Ispat Nigam Ltd (RINL) in structurals and rounds.

The hiking of freight rates of coal, iron ore and manganese ore by railways would further enhance prices. All steel majors including SAIL, Tata Steel (which had announced price freeze till March 2005) were likely to review prices.

The global overtone would also cast its cloud on the domestic market. The shortage was not just in the domestic market.

Industry sources said, world over, there was a shortage of 12-13 million tonne.

The global consumption in 2004-05 was expected to be in the region of 990 million tonne, which was 743 million tonne even three years back.