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CHAIRMAN's DESK

As we near the end of the current financial year 2004-05, there are positive indications that production of finished steel will touch about 38 million tonnes as against 36 million tonnes in the previous year, i.e., a rise of 5.5 per cent. The feel good factor continues unabated and there is a general perception that the good times will continue at least for a few more years. It is reported that China is now undertaking a major development programme for enhancing the infrastructure facilities in the interior districts and hence their demand for steel will continue to remain firm for quite some time. Of course, there are attempts to regulate the steel industry in China including the import of iron ore since there are reports that too many players have resulted in a deterioration in the quality of imports thus adversely affecting quality of steel produced. If these reports are true, the buoyancy in the iron ore export market is likely to level off if not decrease somewhat. It is nevertheless, a matter of satisfaction that the past year’s buoyancy in iron ore exports has managed to clear out a lot of the old dumps of fines which were posing an environment hazard. The recently announced Budget continues the past trend of reduction in overall duty levels. The duty on non-alloy steel has come down to 5 per cent while duty on alloy steel is at 10 per cent. The duties on raw materials have come down and this should help to increase availability. Nevertheless, the industry will have to respond to this general reduction by becoming more competitive and reach international bench mark standards before the down turn kicks in. The industry is lucky to have adequate breathing space for becoming more competitive in the present time of market buoyancy. There are reports of some anomalies which have crept in, particularly in the refractory industry where both raw materials and the finished refractories have been brought down to 10 per cent. Ideally, there should be a 5 per cent differential between raw materials and the finished products. Some essential raw materials for refractory manufacture which are reported to be largely imported, however, have a duty of 15 per cent and this inverse duty will adversely hit the refractory manufacturers. The excise duty has been revised upwards from 12 per cent to 16 per cent and this has resulted in direct increase in steel prices by about Rs.1000/-. While the excise duty is modvatable for a majority of steel consumers of flat products, this is not so for long products which are largely used in the construction industry and cannot avail of modvat credit. This will directly impact the construction sector and so, the overall consumers of long products are likely to be worst hit due to this measure. The government of course has in mind not only the need to generate adequate revenues but also the fact that in the past, reduction in excise duty did not lead to a comparable reduction in prices. The most encouraging feature of both the general budget and the railway budget for the year is heavy stress on infrastructure development. This should definitely translate into higher demand for steel and, therefore, sustain the industry in its growth plans. There are concerns about prices and their effect on the down stream consumers but in the ultimate analysis, additional availability should help to dampen the price curve. (J P Singh) Joint Secretary Ministry of Steel & Chairman, JPC. (This is excerpted from JPC Bulletin February' 05)