Who would be a steel producer in India? Just as the market is showing signs of a decent recovery, your government is pouring millions into infrastructure projects and the demand is allowing you to raise prices, as the market strengthens you are raising prices in modest increments only to have the government make you reverse the increases according to the Hindu Times. Not something the steel industry in the US has to contend with but in India things are done differently and the government feared Steel Authority of India’s (SAIL) recent Rupee 1,500/metric ton increase (US$33/ton) would add to inflationary pressures and force the state owned steel producer to retract the announcements and compromise on the increase. Although SAIL had cited rising raw material costs as the reason for the price increase, the government reasonably pointed out that as SAIL owns most of their own coal and iron ore reserves, raw material costs hadn’t materially changed. The price increase was taking advantage of an increasingly tight domestic market. What the government didn’t add was the market is partially shielded by import duties, without which SAIL would be facing much stronger competition from China and the Ukraine.
The domestic Indian steel market is doing very nicely this year. Tata Steel, the world’s eighth-largest steelmaker and India’s second, said last week sales from its Indian operations rose 73% in December to 636,000 metric tons from a year earlier and sales for the third quarter rose 49% to 1.60 million metric tons. The Indian operations account for about a quarter of the group’s total annual global capacity of 30 million tons and no doubt helped the group nurse losses from their Corus subsidiary, Europe’s second-largest steelmaker. The breakdown of growth by product category illustrates that unlike China, the growth in India is coming more from consumption. Sales of flat products, used in automobiles and consumer durables, surged 90% in December, while sales of long products, primarily used in construction, rose “only 56%.
A recent Reuters headline said, “Metals power Indian shares to best close in 22 months says it all. In addition to Tata, JSW, India’s number 3 steel maker said its crude steel output jumped 88% to 1.47 million metric tons in the three months to December encouraging all the private steel mills to raise prices. And not just steel – aluminum producers Hindalco and Balco are also enjoying rising returns as demand remains strong and rising world commodity prices allow them to realize higher sales prices while enjoying fixed raw material costs.
So in answer to who would be a steel producer in India, right now I think the answer is anyone given half a chance would jump at it. Producers of a range of basic metal products look like the blend of partial protection from imports, largely fixed raw material costs and a robustly growing domestic market will provide a profitable formula for the year ahead. No wonder the government is keen not to choke off India’s competitiveness by allowing prices to rise un-sustainably.