The Hindu Business Line : Regulator for steel

This is with reference to "Why a regulator for steel?" (Business Line, June 16). The arguments against a regulator advanced in the editorial may hold good for a free market where there are many producers competing among themselves giving a free play to the market forces of supply and demand.

This situation cannot be said to prevail in India with a handful of big manufacturers joining together under the informal banner of ISA to protect their common interests and profits.

The consumers are at their mercy with little role for the government, post deregulation.

These producers always clamour for a protective duty regime also making imports unviable.

These large steel producers act in unison in the timing and the extent of pricing.

Not all the plants have the same costs of production considering their technology, age of the plant, capital costs, location, product mix and the capacity. Yet, their selling prices do not vary very much.

The prices of steel are not obviously cost based for individual categories.

It is based on the principle of `what the traffic can bear'. There is likely to be some amount of cross subsidisation with the prices of long products sold to government departments being lower yielding small or no margin and the prices of flat products such as HR/CR products bearing a higher burden.

There are certain categories of materials that have poor domestic demand and exported perhaps at un-remunerative prices. With the resultant loading in the prices of other products.

For long products produced by a large number of secondary producers out of scrap and defective materials, higher prices cannot be charged. Competition is in full play here.

A regulatory authority with experts from different fields will not only be for regulating the prices but also overseeing the overall demand and supply position, the production and the product mix, creation of excess and unviable capacities etc.

In the absence of some regulation, steel prices will increase at regular intervals triggering inflation. There will be no motivation to reduce costs or be competitive amongst themselves.

K. Parthasarathi

Nashua, US

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