BOMBAY, 9 August 2004 — The Indian steel sector has been shinning for some days now. It attracted more luster this week when major steel producers of India hiked the prices of their retail steel products, for the fist time in five months.

Prices of hot rolled coils (HRC) were upped by major manufacturers by at least Rs.500 per ton with effect from August, taking advantage of a lean season and a sharp spurt in global prices. Consequent to this price hike, the ex-factory price of base grade hot rolled coils in India stands at Rs.25,500 per ton, one of the highest in the past seven years.

HRC forms the raw material for all flat steel products and their prices had been stable for some time now because of pressure from the government, which did not want to upset steel users.

Tata Iron and Steel Company Ltd. (Tisco) raised prices of hot rolled and cold rolled coil products for retail sales by Rs.300-500 per ton. Essar Steel Ltd., Jindal Vijaynagar Steel Ltd. and Ispat Industries Ltd. have raised prices of hot rolled coil products by Rs.500 to Rs.1,000 per ton. The state-run major Steel Authority of India Ltd. has withdrawn the price discounts on its flat products, which tantamounts to a hike in prices by a similar margin.

Though none of the companies cited any reason for the hike in prices, analysts say that hike has come on the back of soaring demand for steel, especially from the automobile sector and construction.

Globally also steel prices have been surging. The prices of HRC products have zoomed to $750-780 per ton in the US. In the European markets, HR coil prices were in the range of $630-650. Only in China, the prices are still hovering around $580.

In the first six months of the year, the price of steel soared by 60 percent as China overtook the United States as the world’s largest steel consumer. China currently accounts for 4 percent of the world economy and Chinese steel consumption now absorbs 25 percent of global production, more than the US.

Along with the good news on the hike of prices, statistics shows that the first quarter of 2004-05 has been very good for the Indian steel sector. The aggregate net profits of eight major steel manufacturers in the first quarter have already reached almost $500 million. It is estimated that Steel Authority of India Ltd. (SAIL) alone will earn a net profit of at least $1 billion by the end of this fiscal.

Analysts are bullish on the steel sector as a majority of them believe that international steel prices will continue to remain high and will sustain for a longer period.

This optimism stems from the rising demand from China and most of the economies, US, Europe and Japan are showing signs of growth. The demand for steel globally and domestically is expected to be around 6 percent.

The Indian iron and steel industry is nearly a century old. India is the 8th largest producer of steel in the world producing nearly 30 million tons of steel.

The industry gives direct employment to about 0.5 million and indirect employment to 1.5 million people. The biggest strength of the Indian steel sector is that it has easy availability of raw materials (iron ore) and cheap labor though high costs of power, fuel and freight costs cut the profit margins.

The per capita consumption of steel in India is only 27kg, which is far below the level of other developed and developing countries — 472.4kg, 428.6kg and 128kg in US, EU and China respectively.

In developed countries the labor costs are 35 percent of the total cost of steel production whereas it is only 15 percent in India inspite of overmanned steel plants.

April 2004 has been historic for the Indian steel industry. For the first time ever, cutthroat competitors —SAIL, Tisco and Essar Steel, Jindal Iron and Steel and Ispat came together to form Indian Steel Alliance (ISA). The main aim of ISA is promotion of steel in the domestic market.

Though India has been doing well domestically, Indian steel is yet to catch up on the export front. To make the Indian steel industry globally competitive it is very important that new capacity using the most efficient and low cost technology should be used.