The country’s steel barons like the Tatas and the Jindals have seen their wealth in the stock market shrink by over 25 per cent since May 7, when the government persuaded them to cut prices and hold them for a three-month period.
During the same period, the Bombay Stock Exchange’s 30-share index, Sensex, declined by 16.46 per cent.
On May 7, the steel producers in a meeting with Prime Minister Manmohan Singh agreed to cut prices by up to Rs 4,000 a tonne and hold the new prices for three months.
While this moratorium ended on August 6, the industry chose to hold prices further.
And now, the situation is changing. Forget hiking price, the existing conditions could lead prices to decline.
The over $100-a- tonne decline in international steel prices due to improved availability has also exerted pressure on domestic prices.
The landed cost of hot rolled coil (HRC) has declined from $1,120 to $1,020 a tonne since July. Even with the recent weakening of rupee, the landed cost of HRC is just above the domestic HRC prices. On the other hand, there is no respite in prices of raw materials like iron ore and coking coal. Industry watchers anticipate a pressure on bottomlines of the steel companies in their second quarterly results.
Companies like JSW and Ispat, which do not have a secure raw material supply, have already seen a dip in net profit for quarter ended June.
Earlier, the government had imposed a 15-per cent export duty on long steel products such as bars, rods and angles. It also removed the 5-per cent customs duty on import.
| MELTING POINT | ||||
| Company | Promoters’ share in market-cap | Decline in Rs crore | Change in % | |
| As on May 7, ‘08 (Rs crore) | As on Sept 5, ‘08 (Rs crore) | |||
| Tata Steel | 20455.36 | 13912.96 | 6542.40 | 31.98 |
| JSPL | 20545.76 | 16226.77 | 4318.99 | 21.02 |
| JSW | 7714.00 | 6244.00 | 1470.00 | 19.08 |
| Ispat Industries | 1,719.53 | 1,219.26 | 500.27 | 29.09 |
| Total | 50,434.65 | 37,602.99 | 12,831.66 | 25.44 |
Consequently, in the April-July period steel export dipped by 25 per cent to 2.75 million tonnes, while import surged by over 20 per cent to 3.5 million tonne. Now, the domestic industry is demanding re-imposition of import duty.
All these actions came as a part of government’s price-control measures to contain inflation.
Finance Minister P Chidambaram also accused the industry of forming a cartel to keep prices high. Steel along with iron has a weight of 3.64 per cent in the wholesale price index (WPI).
Flat steel product prices had jumped 17 to 24 per cent since April 2007, while long products like bars and rounds have appreciated 50 to 60 per cent over the same period.
Steel is not the only industry that has been impacted by government’s price control measures.
Sectors like sugar and cement have also witnessed similar pressure owing to interventions like export ban and import relaxation.
