The Hindu Business Line : SAIL may increase prices after July

Chennai, June 5 The Chairman of Steel Authority of India Ltd, Mr S.K. Roongta, on Thursday said that a rise in steel prices would be inevitable after July. “We have committed to the government to hold the prices until July. We will definitely have to take a re-look at the prices,” he said, adding that cost pressures were “enormous”.

To what extent and when exactly we will be raising the prices is difficult to say now,” he said, in an interaction with journalists of The Hindu group of publications.

The entire requirements of SAIL’s iron ore come from its captive mines. It is also a large, integrated plant with depreciated equipment. Would SAIL not be in a position to hold prices?

Answering this question, Mr Roongta said that SAIL’s cost advantages did not mean that it should be penalised. “If I am a high-cost producer and the market prices are low, then nobody is going to take a look at my costs and pay me a higher price,” he said

“If we have come to this stage, we have done so through various efforts. Last year, our capacity utilisation was 118 per cent and the benefits (of our efficiency) should accrue to us,” Mr Roongta said.

He stressed that only if producers were allowed to make profits would consumers benefit in the long run. “Consumers’ interests are never served by keeping prices artificially low,” adding that doing so would lead to shortages and the consumer would be the worst sufferer.

Asked if ONGC could give up a part of its windfall profits (by assuming a part of the burden of under-recovery of prices by the refiners), why not SAIL also do the same, Mr Roongta stressed that SAIL did not make “windfall profits”. (SAIL returned an EBIDTA (earnings before income, depreciation, tax, amortisation) margin of 33 per cent last year.)

He noted that when the steel industry was making profits globally, SAIL alone could not be asked to surrender its advantage.

“Let me tell you, it is not workable. It is not a question of sacrificing profits. The market price is determined by the prices at which the majority of producers sell. If I sell my product at a price less than other producers, then the benefits of the lower price will not go to the consumer. Lot of steel we sell is reprocessed further. The benefits will go to the intermediaries and the consumers will not benefit. On the other hand, I would be deprived of the funds that I could have ploughed back in creating new capacities,” he said.

Mr Roongta also pointed out that for a good 32 years out of SAIL’s 50 years of existence, it was forced to sell products at administered prices which some times did not even cover costs. For example, rails were sold to Indian Railways at prices below costs.

As a consequence, SAIL, which had reached a capacity of 12 million tonnes by the late 1980s, remained at that level, having no funds to expand. As a result, the country was today short of enough steel capacities, he said.