Transformer manufacturers such as BHEL, Crompton Greaves, Alstom, EMCO and TELC have been severely hit by the rising prices of silicon steel, as also other inputs like copper.

Amit Mitra

Mumbai, Sept. 8

ALARMED by the fact that the ballooning of silicon steel price is affecting the power sector reforms, the Power Ministry has initiated a move to ensure that manufacturers of electrical transformers are able to enter into long-term contracts with the few international suppliers of this critical raw material.

The Ministry will be exploring the possibility of taking the help of the canalising agency, MMTC, to import the special cold rolled grain-oriented (CRGO) silicon lamination steel in bulk through long-term contracts.

This move will greatly help the manufacturers to partially offset the difficulties they are facing in the form of uncertainty in supplies and sharp increase in prices.

According to sources, the Power Ministry will also be asking the Steel Ministry to examine the feasibility of establishing a CRGO manufacturing unit in India, in view of the increasing domestic demand for the product in the wake of the new power projects that would be coming up.

Indeed, major transformer manufacturers such as BHEL, Crompton Greaves, Alstom, EMCO and TELC, apart from the other 70 to 100 medium manufacturers and about 450 small manufacturers have been severely hit by the rising prices of silicon steel, as also other inputs like copper.

This has prompted them to jack up the prices of the electrical equipment, much to the chagrin of the State and Central utilities.

Manufacture of the CRGO type of steel requires precision and controlled process and hence there are a handful of steel mills in the world that produce this material.

And with steel prices globally increasing, manufacturers of CRGO steel shifted focus to other products, which also contributed to constricting the supplies and increase in prices.

Industry sources say the prices of CRGO steel increased from Rs 82,815 per tonne in July 2004 to Rs 1.21 lakh in February this year.

In fact, from July 2003 to February this year, prices increased by over 46 per cent.

Mr S. Ramaswamy, President of Indian Electrical Equipment Manufacturers Association (IEEMA), said: "The cost escalation from January 2005 to June 2005 was from $2,000 per tonne to $3,500 per tonne this has far surpassed the absorption capacity of the transformer manufacturers."

At present, the high-grade CRGO variety has a price tag of $4,500 (it was $1,200 one year ago), while the lower-grade variety costs $4,000, as against $700 per tonne an year ago.

The steep rise in prices is also attributed to the fact that there are hardly seven to eight international suppliers, who have formed a tightly knit group having full control over prices.

The world production of this type of steel is estimated at 13 lakh tonnes, with India's consumption being one-lakh tonnes.

"The domestic demand is estimated to double in the next five years," Mr Sunil Moore, IEEMA Secretary General, said.

In fact, IEEMA had organised interactive meetings with the representatives of various CRGO manufacturers from Japan, Germany and Russia, while recently a delegation also had meeting with one of the leading German manufacturers.

"All these efforts have not helped in improving the availability or prices of CRGO," Mr Moore said.

The transformer manufacturers have also sought from the utilities a re-look at the old contracts so that a suitable compensation package could be pieced together.

(This article was published in the Business Line print edition dated September 9, 2005)
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