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Cap on steel prices not needed in an open economy: JSPL

Addressing a webinar organised by Care Ratings, V R Sharma, the managing director of JSPL said the government should instead lead by example by asking PSUs like Steel Authority of India Ltd and Rashtriya Ispat Nigam Ltd to reduce prices

twitter-logoSumant Banerji | December 29, 2020 | Updated 21:06 IST
Cap on steel prices not needed in an open economy: JSPL
With the mood turning against the industry, Sharma of JSPL admitted that prices need to get stable over the next few months and the industry needs to be cautious about any further hike

As the clamour for curbing runaway prices of steel in the domestic market is gaining momentum, one of India's largest integrated steel companies Jindal Steel and Power Ltd has said the government should resist the temptation to cap prices of the commodity and not set a benchmark on profitability in an open economy.

Addressing a webinar organised by Care Ratings, V R Sharma, the managing director of JSPL said the government should instead lead by example by asking PSUs like Steel Authority of India Ltd and Rashtriya Ispat Nigam Ltd to reduce prices. He further said mining PSUs like National Mineral Development Corporation -- the largest iron ore miner in the country, and Odisha Mineral Corporation should similarly reduce prices of iron ore -- one of the key raw materials for steel making, which would also lay the ground for steel companies to bring down prices.

"Steel prices have gone up in India but it is in line with global trends. Our costs have also gone up as iron ore prices have increased too," Sharma said. "Steel companies have been carrying losses in their books for so many years and this (high prices) will enable us to offset those losses. Profit is not bad, even the government earns more money through GST when prices are high. In an open market economy, nobody can say how much profit a company can make. You can punish us if there are unfair trade practices like hoarding of goods or cartelisation."

Prices of hot rolled coil have increased 46 per cent to Rs 52,000 per tonne in November compared to Rs 37,400 per tonne in July this year. Similarly rebar TMT used in housing and construction sectors has touched Rs 50,000 a tonne. This kind of increase is affecting steel consuming industries like infrastructure, real estate, automobile and consumer electronics, where demand is still relatively muted which limits their scope to pass on the price increases to end consumers.

It has even prompted Nitin Gadkari, the minister for micro, small and medium enterprises and road transport and highways, to shoot a letter to Prime Minister Narendra Modi and steel minister Dharmendra Pradhan expressing concern over the rampant price rise.

"There has been a 55 per cent hike in steel prices in the past six months. I have written to PM and Steel Minister (Dharmendra Pradhan) for a decision on this," Gadkari said earlier this month. "A long-term policy is needed for steel and cement manufactures... a uniform policy. If the price hike had been in the range of 15-20 per cent, it could have been justified but it is abysmally high. It inflates project costs and makes them unviable."

Small and medium enterprises are facing the brunt of this at a time when the outlook on consumption and recovery in the overall economy is still uncertain. The Rs 34,000-crore domestic forgings industry says high steel prices have hammered the industry, which is now battling for survival.  

"Steel prices have increased by 25 to 30 per cent in the last three months, putting the forging industry at serious risk, particularly when we are still recovering from COVID-inflicted business losses and the resultant pressure on cash flow, and cash reserves. The industry is still going through a very difficult time and is not in a position to absorb losses," said Vikas Bajaj, President, Association of Indian Forging Industry. "I believe that rising demand for steel, low steel production for the domestic market due to increased steel exports, are the prime reasons for price hikes. We have requested the government to consider a ban on steel and iron ore exports so that demand of steel within the country can be met in a cost / price effective manner."

With the mood turning against the industry, Sharma of JSPL admitted that prices need to get stable over the next few months and the industry needs to be cautious about any further hike.

"Steel prices affect everybody in the economy and viability of projects do depend on it. We need to tread with caution and I do not expect any increase in price in the next few months," he said.

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