The Hindu Business Line : Still going strong

The Indian steel industry has been witnessing only moderate growth of late. But, according to experts, things can only get better. Kohinoor Mandal surveys the scene.

THE Indian steel industry has been witnessing moderate growth both in terms of volume and value over the last year and the half. This trend has continued during the first and second quarter of the current financial year, 2004-05.

According to figures available from different steel industry associations, production and consumption of steel in the country registered healthy growth during the first quarter of 2004-05.

While production increased by 2.8 per cent, consumption recorded a growth of 5.1 per cent compared with the corresponding quarter of the previous financial year, 2003-04. Similar growths have been recorded both for flat and non-flat products.

Production and consumption of flat products increased by 2.3 per cent and 6 per cent, respectively. The flat segment recorded a 3.7 per cent growth in production and 4.2 per cent growth in consumption.

Steel exports from the country, during the current financial year has, however, suffered a setback.

The key factor behind the fall of exports is the removal of DEPB (Duty Entitlement Pass Book Scheme) benefits. Subsequently, the DEPB benefits were restored in July 2004. It is now to be seen how it impacts exports.

The overall steel export during the first quarter of 2004-05 fell by 21.5 per cent. While the export of non-flat products dropped by 46.9 per cent, export of flat products declined by 18.1 per cent.

Steel imports into the country during this quarter witnessed a growth of 9.6 per cent, with the flat segment reporting a growth of 2 per cent and the non-flat segment registering a 329 per cent growth. However, this massive growth is mostly due to a low base in the corresponding quarter of the previous financial year.

Domestic steel prices have been moving upwards since the beginning of 2002-03. It has been mainly in accordance with the global steel prices. Growth continued in the current financial year too.

A couple of months back, the major steel producers decided to put a cap on rising prices. The first move was made by Mr Ratan Tata, Chairman of Tata Steel. It was followed by other companies.

The steel companies' decision to hold back the prices came on the back of a shooting price inflation. The newly elected UPA Government found that steel prices were a major component in calculating the consumer price index. So, the top-brass of the Government urged the domestic steel producers to check the prices.

On August 20, 2004, the Union Government further reduced Customs duties on steel products with a view to controlling inflation. The Customs duty on non-alloy steel, other than seconds and defectives, was cut down to 5 per cent from 10 per cent. Melting scrap of iron and steel, other than stainless steel or heat-resisting steel, was exempted from the duty compared to the earlier duty of 5 per cent. The duty on ships brought into India from breaking was slashed to 5 per cent from 15 per cent.

Reduction in Customs duties on steel products may affect the operating margins of the steel companies. The combined impact of Customs duty reduction and excise duties may create a neutralising effect on the steel prices.

Despite all these developments, several experts feel that the fundamentals of the India steel industry appear to be improving in the near to medium term. Rising steel prices is also playing an important role in improving the fortunes of this sector. Indian steel producers should continue to strive to improve the operational efficiencies. This would be a key factor in determining the profitability of the domestic steel producers. This can be achieved by introducing cost-control measures, enhancing capacity utilisation and altering product mix for maximising the share of value-added products.