The return of the feel-good factor in Indian steel market is to be seen as a cause of both satisfaction and worries. It satisfies the producers particularly of the flat ones who are slowly coming out of the sliding path. The worries are centered on the extreme volatility concerning the continuity of the rising trend of product realisation and consequent higher capacity utilisation. The primary factor restraining the fortunes of Indian steel industry lies in an overall perception in the country that steel being the backbone of industrialisation must be made available at a cheap affordable price. The legacy of cross subsidising other vital infrastructure sectors like coal, railways, power, petrochemicals etc. by depriving steel its market-determined prices for the last forty years has robbed the industry the requisite vitality to survive and grow. It is amazing to find how enhanced profitability of many user segments like, auto components, tube making, cold reducing etc.primarily on account of lower raw material costs does not get reflected as strongly as a marginal increase in prices of steel products. Substantial credit goes to our media for concealing the woes of steel producers suffering long from a secularly declining price trend and conversely highlighting the rising costs of the end users due to price corrections periodically resorted to by the producers. The problem is squarely lying with the manufacturers for feeling shy to elaborate the justification of the price rise arising out of market-determined forces.

There is a large component in Indian steel industry, which was set up with the fond hope of a continuous supply of basic input like steel cheaply. There was a built-in perception that the primary function of the bureaucrats manning the administrative ministry was to ensure steady availability of cheap steel particularly from the public sector. It is indeed a sad commentary that a responsible media tends to go along with this view and look upon all attempts to enhance steel prices as unethical and mere attempts of unscrupulous rentiers. We are also not aware if market-corrective price adjustments in any other industrial product receive so much hype as that of steel.

Turning to the current features, a surge in demand especially for long products (reinforcement steel) is clearly discernible. Construction demands this year is likely to evade the adverse impact of monsoon to a large extent. There is a distinct shift in demand towards quality products manufactured by the main producers and a few reputed rerolling units. As the demand growth also encompasses plates, a flat category, the feel-good factor is confined not only to long. The market prices of reinforcement steel have risen by at least Rs.1200/ per tonne in the last two months and are slated to go up by another Rs.1000/ per tonne in the current month. That prices of long products in Indian markets are still largely immune from global price fluctuations is evident from the fact that in Europe and Far East there is a downward pressure on long product prices.

Globally the firming up of sheet and plate prices after a short-spell fall from March onwards signals a renewed hope. Average domestic prices for HR Coils at Rs.15800-16500/- (net of duties) are much lower than the peak reached in January/February but higher than April/May and available indications suggest that the northward journey be on. Chinese TRQ has once again opened export opportunities for Indian exports of Coils. Resurgence of domestic demand in Russia and CIS countries has compelled them not to depress global prices by excess supply. Thus growth in demand and marginal firming up of prices, both at national and international level, augurs well for a shortened phase of gloom that was threatening all along. Interestingly the average differential between the prices of finished long and flats of Rs.4000-4500/- per tonne has already come down by Rs.1500/- in the recent past and is likely to converge further in the coming period. This would influence the investment decision on creation of fresh capacities and is a crucial input for the financial institutions before they embark on a lending spree like in 1990's.

The next few months are important for Indian steel industry as two major forums are currently deliberating on issues of vital importance to Indian steel industry. While OECD steel forum is actively formulating guidelines to eliminate all steel-specific subsidies that protect inefficient capacities, the WTO negotiations on tariff rates for non-agricultural products are progressing well and require consensus in the post-Cancun scenario.

Steel Subsidy Agreement (SSA) has reached an interesting stage. USA is spearheading the deal for an agreed draft that comprehensively takes care of the current state of their steel industry, with so-called "little government support", a free trade regime and an iron clamp on all supports extended by the governments of the participating countries. There is every reason to believe that the revised draft would ultimately supercede the WTO Agreement on Subsidies and Countervailing Measures. India has been participating in the discussions, primarily to stay engaged so as not to repeat the mistakes committed in the earlier Uruguay Round deliberations by remaining aloof. It is now gradually emerging that India's concerns on the continuation of govt.support for infrastructure constraints, various supports needed under Special and Differential Treatment for the developing countries including specific export support would not be addressed in the draft. As China has decided to remain out of the deliberations, it has become increasingly difficult for India to carry alone the agenda for steel-producing nations belonging to the developing group. Here also our Industry Associations are not of much help due to a well-established belief that Indian steel industry is too protected and leaning towards USA in this case may benefit the interests of other industrial segments, which they represent. Steel producers in USA have been the largest beneficiaries of largesse of the federal government. With huge inflow of fund, the legacy costs of the declared bankrupt steel units have been met. Now the same capacities are coming up under new entrepreneurial venture. The suggested draft has kept all subsidies relating to partial closure to be an exception to prohibitive subsidies and therefore not countervailable. Utmost care and close monitoring would be required at the government level to take care of the genuine needs of our steel industry in formulating the draft in the interest of its long term journey to growth and development.

The current WTO negotiation of tariff structure is another phenomenon of immense concern to Indian steel industry. India's tariff rates on industrial products are normally higher than the comparative rates in other countries. The current negotiation would cover the bound rate on tariff. If the applied rate is lower than the bound rate (in steel it is 25 percent against 40 percent) the negotiation should start from the bound rate level. This is logical to give credit to those countries that have reduced duties below the bound level in the intervening period. There is a strong possibility that applied rates would be the point for negotiation, in which case the compulsion on India to bring down tariff at a much faster pace would be an eventuality. This would also disrupt the process of steel industry's preparedness to face a lower tariff regime. Industry Associations and the concerned wings of the government have to evaluate the interests of various industry segments on a balanced and uninhibited principle.