The Hindu Business Line : `We want to make profits, but we don't like to profiteer'

Mr S. K. Roongta, the Chairman of Steel Authority of India, is a professional with over 35 years of experience in the steel industry. In an interview to Business Line, he explains why steel prices must inevitably rise and defends SAIL's policy of keeping prices in alignment with the market.

Excerpts from the interview:

Steel industry senses the pulse of the economy because the demand is very sensitive to economic trends. Do you see any signs of slowdown?

I feel that the demand for steel will continue to be in double digits. We have just started on (building) our building on our infrastructure. There is a lot of construction going on - power projects, hotels, cement, metals and even the steel units are expanding and, consequently, there will be higher production in the capital goods industry.

The only area of concern cancould be the white goods and automotive sectors. But in the Indian context, the auto sector is not a very significant consumer of steel as yet. It is a potential potentially significant consumer, but not as of now. So, I see a good growth in steel demand in the current year too.

Do you anticipate a sharp hike in steel prices?

Global prices have started rising significantly from January-February this year, especially because of after the big spurt of in the prices of coking coal and because of the flooding of a mine in Australia. But the demand was good and steel producers were able to pass on the price rise to the customers.

Then the Government stepped in and after a series of meetings, the industry brought down the prices in May and promised to hold the prices them for three months.

In the meantime, international prices have continued to rise. In April, some steel producers like such as Arcelor Mittal imposed a surcharge of $250 a tonne on concluded contracts. Some other producers have announced further hikes from July 1.

Today, the domestic prices of flat products are about 25-30 per cent lower than international prices. Even the prices of long products are about 20 per cent lower. This is the scenario.

But will SAIL raise prices after July?

Well, we have made a commitment to the Government that we will hold the prices for three months and we will stand by that commitment. Beyond that I can only say that cost pricesthe costs are really enormous huge, so definitely we will have to have a relook at our prices. To what extent we will be raising, when exactly we will be raising - it is a little too early to say.

SAIL is an integrated steel producer with depreciated plant and machinery and with 100 per cent captive iron ore mines. Why should SAIL steel sell in India at international prices?

If SAIL is an old and efficient plant, it doesn't mean - You know, that is not how the market works. If SAIL was a high cost producer and the market prices were lower, nobody is going to would look at our costs and pay a higher price.

If we have come to this stage, and if we are operating at 118 per cent capacity, then the benefits should accrue to us. This will only translate into long-term benefits to the consumer. The best insulation against high prices is enough adequate capacity.

Ultimately what will serve the interests of the consumer are adequate supplies. Consumers' interests are never served by keeping prices artificially low. Shortages will emerge and the consumer will be the worst sufferer.

If ONGC can be asked to give up a part of its windfall profits, why not SAIL?

I don't think we are having that kind of windfall profits.-

Your last year's pre-tax profit was 25 per cent of sales.

25 per cent pre-tax profitThis cannot be called windfall profit. You must also realise that SAIL has been in existence for fifty 50 years and for more than 32 of these fifty years, we were selling our products at administered prices which many times did not even cover our costs.

For example,The administered prices at which we supplied prime rails to the Indian Railways till 1991 is a case in point - today the Railways will realise four times those prices when they scrap the rails. That is the kind of subsidy that some of the main producers such as SAIL provided to the economy and the consumers. That is why we were not able to generate enough resources to expand.

Even by the late 1980s, SAIL's capacity was about 12 million tonnes a year, but we remained at that level, adding half a million tonnes here and another half a million there, when we should have really expanded. If we had, then today we would have enough capacity and the consumers would have benefited.

So, profits are not as per se bad provided they are used for productive purposes.

But still, with 100 per cent-owned iron ore, SAIL is in a unique position to hold the price line?

We are holding the prices. We are selling 30 per cent cheaper than the international price. It was SAIL that came forward as per heeding the call of the Government - in April, we not only did not increase the prices, as some other producers did, but we also helped create an atmosphere in which others also came around and rolled back the prices. SAIL has been discharging its responsibility to society and we will continue to do so. We also want to make profits, but we don't like to profiteer.

What level of profit would you consider `profiteering'?

(Laughs) Globally, when the steel industry is making profits, then how why SAIL alone can should surrender that advantage? It is not workable. Let me tell you, it is not a question of surrendering your profit. If I sell my product less than other producers, eventually this benefit does not go to the users. The market price is determined by the price level at which bulk of the majority of steel is sold in the country. The steel I am selling is not directly consumed by the users - much of it is reprocessed.

For example, if I sell $5 cheaper, then somebody will buy from me, convert it into pipes and sell the pipes at market prices. The benefit will go to intermediate processors. No benefit will go to the consumers. I'll only be deprived of the profits that I could use for creating additional capacities.

What cost-cutting measures are you undertaking in your plants?

We are taking steps to reduce consumption of coke by using alternative fuels like tar. Already, in six of our blast furnaces, we are having CDI (coal dust injection) and we are implementing CDI in more.

We are trying to improve blast furnace productivity, reduce energy consumption. Every year, we are bringing down energy consumption by 2-3 per cent, which is a huge saving.

Last year, only 28 per cent of our additional profits came from price appreciation. As much as 72 per cent came from internal measures.

The productivity of Tata Steel's blast furnaces is said to be around 2.5 tonnes (of steel per day, per cubic metre of the furnace). What is it for SAIL?

Ours is a little over 1.5. For Tata also, it is not 2.5 - only in one blast furnace, which they have revamped recently, it is 2.3 or so.

Our blast furnace is productivity right now is low by international standards. We are taking steps to improve. The new blast furnaces that will come up in our modernisation programmes will have a productivity level of 2.3 to 2.5 tonnes. But the productivity has a linkage to the quality of ore also. Our iron ore has a higher alumina and silica content.

Are all of your plants `continuous casting'?

No. As of now, only 65 per cent are continuous casting, the rest are ingot-based. But in our modernisation programme we will be converting them into concast. That is another step in bringing down costs.

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SAIL may increase prices after July

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