As the government relents, steel players must get their house in order
“Don’t put the steel industry between two prongs, where one prong is regulated by the suppliers of raw materials and the other end is held by the regulated prices. This way the steel industry will crash…” said Moosa Raza, President, Indian Steel Alliance (ISA), when B&E interviewed him in March 2008. Though ISA has since dissolved, but Raza’s words are finding resonance today, as all major steel players of the country have, one after the other, posted losses for the third quarter ending December 2008. Will 2009 see the Indian steel sector resurface or drown?
While net profit of Tata Steel and SAIL dipped by 56.36% and 56.4% respectively; JSW Steel recorded a net loss of Rs.1.27 billion as opposed to Rs.3.55 billion during the same period last year. “The losses were mainly due to rise in raw material costs, slackening demand in the home market and foreign exchange fluctuations,” points out a Mumbai-based steel and metal analyst.
The problems with the sector date back to 2007, when India’s iron was being guzzled by China whereas the latter was not allowing its coking coal and coke to be exported to India. This lead to high prices of coking coal and coke (key ingredients in steel manufacturing), which forced steel players to increase selling prices of their products. That’s when the Government of India intervened, unfairly, if you take the steel players’ perspective, and withdrew tax benefits entitled to the steel sector in March 2008. The Government also banned exports and scrapped the Duty Entitlement Pass Book (DEPB) Scheme, which allowed steel players duty-free imports of raw materials equivalent to the value of exports. A drop in demand of steel in the domestic market by sectors such as automotive, construction, et al further worsened the situation. And this is reflective in the current balance sheets of the Indian steel players. If those owning captive mines like Tata and SAIL are facing reversals, imagine the plight of the others.
“Don’t put the steel industry between two prongs, where one prong is regulated by the suppliers of raw materials and the other end is held by the regulated prices. This way the steel industry will crash…” said Moosa Raza, President, Indian Steel Alliance (ISA), when B&E interviewed him in March 2008. Though ISA has since dissolved, but Raza’s words are finding resonance today, as all major steel players of the country have, one after the other, posted losses for the third quarter ending December 2008. Will 2009 see the Indian steel sector resurface or drown?
While net profit of Tata Steel and SAIL dipped by 56.36% and 56.4% respectively; JSW Steel recorded a net loss of Rs.1.27 billion as opposed to Rs.3.55 billion during the same period last year. “The losses were mainly due to rise in raw material costs, slackening demand in the home market and foreign exchange fluctuations,” points out a Mumbai-based steel and metal analyst.
The problems with the sector date back to 2007, when India’s iron was being guzzled by China whereas the latter was not allowing its coking coal and coke to be exported to India. This lead to high prices of coking coal and coke (key ingredients in steel manufacturing), which forced steel players to increase selling prices of their products. That’s when the Government of India intervened, unfairly, if you take the steel players’ perspective, and withdrew tax benefits entitled to the steel sector in March 2008. The Government also banned exports and scrapped the Duty Entitlement Pass Book (DEPB) Scheme, which allowed steel players duty-free imports of raw materials equivalent to the value of exports. A drop in demand of steel in the domestic market by sectors such as automotive, construction, et al further worsened the situation. And this is reflective in the current balance sheets of the Indian steel players. If those owning captive mines like Tata and SAIL are facing reversals, imagine the plight of the others.
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