Inflation can be good: Steel, paper, cement firms reap bonanza

Runaway inflation in commodity prices may have put Prime Minister Manmohan Singh and his government in a spot of bother, but it has meant a huge bonanza for companies operating in industries like cement, steel, mining and paper.

Numbers collated by the Business Standard Research Bureau show that in the last three years, leading cement manufacturers have multiplied their nine-month profits manifold and mining and paper companies have more than doubled it.

Government-owned Steel Authority of India Ltd has seen its net profit rise 75 per cent during the period and JSW Steel 185 per cent. Ispat Industries has pared its losses 98 per cent to Rs 14 crore. Many of these companies have already eclipsed the profits made in 2006-07 during the first nine months of 2007-08.

These companies have reaped the benefits of the unprecedented surge in commodity prices which started in 2006. Steel prices have risen 40 per cent in the last two years, while iron ore prices have gone up 60 per cent.

Paper prices have strengthened 12 to 14 per cent. Cement prices have flared 60 per cent during the period. The government's various attempts to cool cement prices (lower excise duty for low-priced cement, liberalisation of imports and, lately, a ban on exports) seem to have been in vain. 
 

ON A ROLL Net Profit (9 mths)                Figures for Apr-Dec in Rs crore
Name	2005	2006	2007
UltraTech Cement	83.96	550.74	724.73
India Cements	18.28	309.69	533.10
Madras Cements	46.46	237.04	332.06
NMDC	1273.42	1609.20	2234.01
Sesa Goa	347.29	354.08	693.70
Ashapura Minechem	35.59	69.80	108.39
TN Newsprint	45.94	64.34	85.45
West Coast Paper	30.56	47.34	63.68
SAIL	2938.29	4300.41	5160.02
Tata Steel	2723.27	3118.65	3481.52
JSW Steel	445.85	878.75	1267.19

With the country logging annual growth of almost 9 per cent in the last three years, top functionaries of these companies said the strong demand impulse has helped them raise prices. Cement and steel companies have especially gained from the boom in construction and consumer products.

In fact, such has been the rise in demand that most companies have been able to pass on any rise in raw material costs to their customers.

"The jump in raw material cost has been more than offset by the increase in paper prices," West Coast Paper Mills Executive Director KL Chandak said.

At the same time, proposed capacity additions, particularly in cement and steel, have not occurred as a result of regulatory issues like mining rights and rehabilitation controversies.

While steel companies from all over the world have announced new capacities of about 230 million tonnes, a capacity of only 15 million tonnes has come up in India over the last two years.

Similarly, only 17 million tonnes of the proposed 90 million tonnes of new cement facilities has been put up in the period.

Things might look a little different for steel producers in the near future, owing to the government's vigil on prices. The industry has rolled back prices twice this year but has decided to pass on any rise in raw material prices in the form of a surcharge.

The possibility of a ban on steel futures as well as exports in order to curb prices now stares steel makers in their face. Industry insiders said this could spell disaster as input costs are on fire "" fresh coking coal contracts are being written at double the price of the earlier contracts, while iron ore prices are set to rise 65 per cent.

Till that happens, there is nothing that can keep the cash registers from ringing.