The Hindu Business Line : Steel scrips crash as Govt moots regulatory body

STEEL counters today tanked across the board following talk of the Steel Ministry mooting a proposal to set up a regulatory body to monitor and fix steel prices.

The statement evoked extreme reactions from market participants that found echo in one common question: Are we going back to the licence raj? However, the majority remain convinced that such a proposal is not likely to go through.

The weakness in steel counters is viewed as more of a knee-jerk reaction to what is being termed as an uncalled-for statement. There are also those who believe that the statement has more of a psychological ramification than anything else.

"It almost seems as if the statement was made in order to force steel producers to reduce prices," said a market participant.

Questioning the logic behind such a move, steel sector analysts said that history has proved that a regulated environment brings in inefficiency and malfunctioning. "Given that the Government has started earning off steel prices, why would they even consider such a move now," ask analysts.

Deeming it an impractical suggestion, they said that nowhere in the world did a steel regulatory authority exist.

Steel as a commodity is not standardised and as such there is no trading in futures.

"If international prices move up, how do you propose to control prices domestically? One cannot cap price in such an environment and that too at a time when steel prices are trading 35 per cent higher than last year," said Mr Hanu Bhatia, Vice-President (Equities), Parag Parikh Securities.

According to him, going forward steel prices are expected to rule firm. "The China factor or its proposed slowdown needs to be discounted. In 2003, 36 per cent of the world steel production was consumed by China. Even if there is a slowdown, it would only mean that 28-30 per cent of the global production would be consumed by China."

Reiterating this, an analyst tracking the sector said that Chinese demand would increase belying expectations. "There is no talk of negative growth. In fact, in all likelihood China will consume more steel, over and above last year."

On talk that the Ministry has also supported a demand to abolish the current five per cent import duty on scrap, industry sources said that such a step was unnecessary keeping in mind that scrap prices are on a downward trend.

"If the Government were to consider such a move, they should also bring down import duty on sponge iron. There is no point in making one input cheaper and not cross-subsidise it with another input," sources said.

Import duty on scrap was 22 per cent (inclusive of SAD, CVT) before January 8, 2004.

On the NSE, the Tisco scrip ended the day at Rs 272.95, down 5.86 per cent with around 85.72 lakh shares traded, while Jindal Iron and Steel ended at Rs 140.10 - down seven per cent with around 3.49 lakh shares traded.

Uttam Galva Steels Ltd closed at Rs 11.55, down 6.85 per cent with around 66,583 shares traded while Bhushan Steel and Strips at Rs 77.25 was down 1.40 per cent with around 27,448 shares traded.

On the BSE, SAIL ended at Rs 26.50, down 8.46 per cent with around 45.22 lakh shares traded.