Pramod Kumar Rastogi is not even a month old as steel secretary. But at the recent Assocham-sponsored India Steel Summit, Rastogi did not leave the assembly in doubt that he is a quick learner. This coming to grips with the complex problems besetting the steel industry has led him to convene a meeting of steel makers and iron ore miners, with him playing the role of a referee.
The meeting will be of significance since the margins of steel-makers without mine linkages have come under great pressure in the wake of long-term iron ore contract prices rising four times in the past four years. To the extent that steel-makers are obliged to buy ore in the spot market, they end up paying a good premium on contract prices.
Rastogi will be expected to prevail upon the mining groups, which at present are selling more ore abroad than what is consumed by the domestic steel industry, to make the raw material available to domestic steel producers at reasonable rates and very largely on a long-term contract basis. The conditions on the mining front here are such that Rastogi should have success in what he has set out to do.
According to R K Sharma, the secretary general of the Federation of Indian Mineral Industries, of the 2007-’08 Indian ore production of 207 million tonnes, incliding 93 mt of lumps and 114 mt of fines, the disposal in the domestic market was 85 mt and in the overseas market 100 mt, over 80 per cent of it going to China. Miners were, therefore, left with a surplus of 22 mt, which came on top of an existing fairly large stockpile.
Therefore, we do not have a supply constraint of iron ore. High prices of the mineral in the country are caused by what the triumvirate of Brazilian CVRD and Anglo-Australian BHP Billiton and Rio Tinto manages to make the Japanese and Chinese steel mills to concede in the routinely protracted negotiations ahead of a new season.
The meteoric rise in the Chinese demand for ore, long gestation in opening new mines and building of attendant infrastructure for ore evacuation have been allowing the triumvirate to manipulate prices to its advantage.
No doubt, local miners are under pressure as our steel-makers do not tire of urging the government to phase out iron ore exports.
The anti-export campaigners seek justification on grounds of conservation of resources for future local use and value addition. In response, the government has put a 15 per cent ad valorem duty on ore exports. This expectedly has annoyed China, which wants to buy more and more ore from India to reduce its dependence on the triumvirate.
But on its part, China, though richly endowed with coking coal deposits, has put an export duty on the mineral. Our steel-makers, being highly dependent on import of coking coal, have been hit by the Chinese government’s move. Rastogi is in a position to prevail upon iron ore producers to give some relief to local steel-makers. He has, however, been candid in saying: “The government has no control on coking coal prices as the mineral is primarily imported.”
Indian steel-makers should not be apologetic about seeking price revisions of their products. But they have given assurances to the government that though the self-imposed, three-month price freeze is over, they are not contemplating any price revision at this stage.
This is a classical case of the steel industry caught in a Catch-22 situation. Though it is required to foot an increasingly hefty raw material bill, it is restrained from raising steel product prices. At the same time, it must find money to give shape to the country’s ambitious steel capacity creation programme.
