If there is one factor that can be picked up as elusive in the current steel scenario of the country, it is stability. The prices moved northward since Q3 of FY 04 and there was a plethora of forecasts suggesting a return of the golden days after a long bout of depression. A six-month good fortune for the beleaguered producers was cut off by certain loss of warmth in the market. While user segments were increasingly restive about the escalating steel cost, the Chinese demand for steel cooled off due to restrictive measures adopted by the banks by stopping loans/grants for steel and cement sectors in a bid to put a lid on the overheated economy. The preparedness for the General Election, the change of government in the center generated phases of uncertainty in the continuation of the ongoing policies. This coupled with various statements emanating from various sources on the probable course of government action to rein the steel prices impacted the remaining semblance of quietness in the market. A few months immediately prior to the election, the government reduced the customs and excise duty on steel, Pig Iron and Coal to bring down prices and cost of production, advised the major steel producers to maintain price stability till the election is over, suspended DEPB on steel exports to make exports less attractive and thereby enhance domestic availability. There was, however, no perceptible effect on market prices, which remained high. Fluctuating demand for finished products in the Chinese market led to a drop in raw material prices (Coal, Coke, Iron Ore and Scrap). The indigenous coke industry in China is undergoing a joint financial, legal and business restructuring to curtail and rationalize the booming investment. From the available data it appears that large and medium enterprises in China are threatened by the massive investment for fresh capacity additions by small units, which would cater to the growing demand by supplying inferior grade steel. This process, if unchecked, would neutralize the various quality upgradation measures being pursued by the large enterprises. International prices of HR dropped by at least $50-$75 per tonne particularly in China, South East Asia and Europe. The backlash of all these factors in our domestic market was instantaneous. Sharp deceleration in market prices of Plates, HR,CR,GP, Structurals, Billets and Pig Iron took place. Only the ongoing infrastructure projects sustained the demand for structurals and reinforcement bars.

Thus in tune with the volatility in consumption and prices in the global market Indian steel scenario is currently sending a signal of uncertainty in the short term. However much would depend on the government. The Budget is only a fortnight from now. The user segments are clamoring for a reduction in customs duty from 15 to 5 percent across the board. Sector wise there is also a demand for bringing down the duty on HR and Billets from 15 to 5 percent leaving others untouched. In HR segment the huge investment already made in creating capacity and various technological improvement schemes that have been undertaken need to be taken into account before any further duty reduction is considered. It may be kept in view that exports of HR have been sharply reduced to make more HR available in the domestic market. In addition the exchange rate appreciation and withdrawal of SAD (@4%) have brought down the landed cost by approximately 8.4 percent during the last 4/5 months. During January-April, 2004 China produced 19 million tones of HR steel, which exceeds last year's level by more than 28 percent, while the Chinese import of HR has considerably gone down during the period.

As this trend is likely to be strengthened in the coming period, there is a strong probability that diverted imports from China would be made available at a cheaper price in the neighbouring countries including India. A 10 percent duty reduction in a single year is an adequate threat for the indigenous industry to prepare them for international competition. The Billet segment in comparison to HR is rather fragmented. There is an unutilized capability of nearly 40 percent in billet/ingot sector. Tentatively more than 8 million tones of Sponge Iron capacity is under various stages of installation taking advantage of local availability of Coal and Iron Ore. The cheap availability of indigenous DRI would enable the full capacity utilization of IF/EAF units. It is also an acknowledged fact that huge quantity of rerollable scrap that can be directly rolled into finished products are being imported in the name of melting scrap by paying 5 percent duty instead of 15 percent. The ship breaking scrap, which is also a cheaper source of input for finished products, is charged a duty of 15 percent with no CVED. A comprehensive view therefore is to be taken prior to duty revision in the Budget.

There has been of late some talk of regulating pricing and supply of steel in the country. The government has already implemented similar regulatory mechanism with respect to power, telecommunication etc. The objective is to control supply of steel to the designated segments at a controlled price. The issue is complex and a number of factors need to be addressed.

• Is the price control to be imposed on a handful of producers or everybody whose number, at a conservative estimate, may exceed 2500? It has recently been observed that price control on the major producers had little impact on market prices.

• Steel has a range of application that can hardly be counted. If steel at a controlled rate goes for building construction, would the millions of low-income house owners get their flats at a controlled price? When steel prices were nose-diving only a year back, were the prices of automobile brought down? The Competition Law introduced recently may necessitate a change to provide for a non-level playing field for steel vis-ą-vis other commodities.

• Difference between steel and power/ telecommunication is that imports can supplement the domestic availability unlike the latter. In effect the impact of globalisation is more direct in respect of steel compared to other two categories.

• Steel production is dependent on myriads of raw materials which includes coal, iron ore, scrap, sponge iron, limestone, dolomite, to name a few. A cap on finished steel price would require price rigidity for all raw materials. The producers of most of these items fall in the private sector.

• Regulated domestic prices combined with unregulated global prices would play havoc.

• To regulate supply of steel to identified priority segments require an authentic assessment of their real demand as cornering of materials in a supply-controlled (supply from a limited number of producers) scenario and thereby depriving other genuine users has been a regular feature in the past. A micro study of this nature is easier in a centrally planned economy.

• A cursory glance at steel prices would reflect that cost plus mark-up does not add to the price of the finished products in most of the cases. It is crucially dependent on the market absorption capacity at a specific time and location. It is pertinent to identify the speculative components/agents and their methods of influencing the level of prices. To begin with a few consumption points may be chosen to observe the transactional/commercial behaviour of the major players and corrective actions which are temporary and within the existing policies and procedures can be taken. It is needless to mention that existing rules, if implemented with sincerity, are adequate to correct the distortions currently plaguing the domestic steel scenario.