The Hindu Business Line : ‘Customs duty on steel will fuel inflation’

This view comes in the context of a call made by the steel producers and the Ministry of Steel and Mines for bringing in a 15 per cent customs duty on imported steel.

Steel prices, which were around $1,200 a tonne a year ago, have come down to $650 a tonne.

Forging industry

The forging industry, a major user of steel, cries foul against the steel producers’ demand for a customs duty when prices are falling, because not so long ago, when the prices were rising, the user industry called for a regulatory mechanism to check profiteering by steel companies, the steel producers said the call was not in line with ‘open market’.

Even today, the ex-factory prices in most international markets are lower than ex-factory prices in India, notes Mr K. Vidyashankar, President, AIFI.

He notes that on several occasions, when steel prices were about to rise, the producers reneged on their contracts previously entered into and would sell only at the revised prices.

“Quantum of price increases was always so arbitrary, and the user industry, particularly the forging industry, struggled to keep pace with these uncalled for price hikes,” he says.

“Indian auto component exporters and forging exporters earned a bad name in international markets for seeking back-to-back price increases from their customers, sometimes each month,” Mr Vidyashankar, who is also the Managing Director of M.M. Forgings Ltd, a Chennai-based Rs 200-crore company, told Business Line on Friday.

Moreover, steel producers with captive iron ore mines, transferred priced their own iron ore to the steel mills on par with international prices of iron ore, there by making a huge margin, he says.

Contributing factor

Even from a macro-economic standpoint, imposing a customs duty is undesirable, notes Mr Vidyashankar. Steel has been contributing about 300 basis points to inflation.

If steel prices moderate, not only would the inflationary trend be halted, but even reversed.

In fact, it would contribute to a slight deflation, even negating other factors contributing to inflation, he says.

“When the steel lobby has cited market forces earlier to September 2008 for getting their increases through, it is surprising that they have turned around and are now against the very same market principles,” says Mr Vidyashankar.

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