JANMAT Urged for Creation of independent regulator for steel sector

By Pratap Singh 
Bhubaneswar , 11-7-21

 While the growth of Indian steel industry, and sustainable availability of steel in the domestic market at reasonable prices, are vital for the inclusive growth of the country , “JANMAT “ , a forum presenting the concerns of people urged the Government to creat  an independent regulator for steel sector for survival of domestic end use industry and for expeditious implementation of major infrastructure and construction projects.

The demand of steel various sectors are at 55% in construction & infrastructure, 12% in automobiles and 8% in capital goods sector. The growth of MSMEs in engineering sector is largely dependent on availability of steel at reasonable prices. The highest ever prices of steel are seriously affecting the domestic sector and livelihood of millions of people is at stake in this present Covid 19 pandemic. Many important highway projects and other infrastructure projects have become stressed due to exorbitant surge of steel prices.

As the Steel sector is un-regulated, its prices have remained unchecked and end consumers i.e.aam adami’ has to bear these high prices in the value chain for raw steel to finished products. On one hand, the steel sector is acquiring majority of iron ore blocks in auction at exorbitant rates (bids more than 100% of prevailing market price) and passing the high input costs on to end consumers with ever highest steel prices and booking ever highest profits.

The drive of controlling the market both inward of raw material and outward flow of products and maximizing of self-profits is seriously hampering many important infrastructure and constructions projects as becoming financially stressed due to exorbitant steel prices.

Big corporate in steel industry are on their drive to acquire majority of iron ore resources leading low availability of ore
 for secondary industry and small payers. In Odisha, share of captive mines in total production capacity has increased by 97% from their share of 24% (50mtpa) in FY20 to share of 48% (89mtpa) in FY21. On the other hand, the share of merchant mining has reduced by 31% from their share of 76% (154mtpa) in FY 20 to 52% (96mtpa) in FY 21.

Securing majority of iron ore mines in Odisha for captive usage and production much below the rated capacities to meet captive usage is resulting revenue loss over Rs.8072 Cr. to the Exchequers besides artificial shortage of ore for small
 industries and MSME sector.

In FY 2021, in Odisha, out of total rated capacity of 89mtpa for captive mines, production was only 63% (56mt) whereas dispatch was only 49% (43mt) of their mines rated capacity. The has resulted estimated revenue loss of over Rs. 8,072 Cr.
 consisting of Rs.2,046 Cr towards royalty, DMF and NMET and Rs 5.468 Cr towards premium and Rs.558 Cr. towards GST.

Secondly, loss of production of 33mt iron ore (89-56=33) in these captive mines in FY21 could have been produced and augmented in supply of ore in the domestic market for secondary and small industries. The basic objective of these big players in steel industry is to kill the secondary and MSME sector.

JSW Steel Limited , after acquiring 59% (1131million tonne) of total iron ore reserves of 1916 million tonne auctioned in Odisha, it has shown record profits. Its Net consolidated profit for FY 21 was at Rs 7,873 crore, up by 101% from Rs 3,919 crore in FY 20.In Q4 of FY 21, its consolidated net profit jumped 22 times to Rs 4,191 crore a record high, as against a net profit of Rs 188 crore in the same period last year.

Tata Steel Limited , having  operating iron ore mines of 38mtpa (Odisha- Joda East: 12mtpa, Katamati -8mtpa, Khandhandh- 8mtpa; Jharkhand-Noamundi-10mtpa), it is also showing record profits. It has recorded highest consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) of Rs 30,892 crore in FY21, a 71% jump from the previous year.

ArcelorMittal Nippon Steel India (AMNS India) has reported an EBITDA of Rs2,976 crore ($403 million) during the quarter ended March which jumped 2 times the EBITDA of Rs 1,034 crore ($140 million) reported last year mainly on the back of rising steel prices and better demand. 

Highest ever prices of steel is affecting the growth of domestic industry and high cost to end consumer i.e . ‘aamadami’ The prices of HRC,Exw- Mumbai has increased by 89% ( Rs. 31,750/tonne) from Rs.35,750/tonne in July20 to Rs.67,500/tonne in June 21. Prices of Rebar 12-25mm, Exw-Mumbai has increased by 66% (Rs.20,300/ tonne) from Rs.30,600/tonne in July’20 to Rs.50,900/tonne in June 21.

The domestic industry in construction and infrastructure sectors contributes 55% of demand of steel. Similarly, the Automobile sector and Capital Goods sector shares 12% and 8% of total demand of steel. Many important highway projects and other infrastructure projects have to bear this unwanted surge of steel prices.

As per data from the Ministry of Steel, GoI finished steel exports in 2020-21 was around 10.79 million tonnes, showing a growth of 29% year-on-year and export of semis in the 11 month period till February2021grew by 131% to 6.09 million tonnes. Thus, even the semi are rampantly exported which could been made available to domestic industry for larger value addition and employment generation.

JSW Steel Ltd is the largest exporter of steel from India. It has exported 4.23 million tonne steel in FY2021, an increase of 36% y-o- y basis and exports accounted for 28% of total sales (compared to 21% in FY2020).

Jindal Steel & Power Limited has exported 2.53mt rise by 226% in FY21, accounting for 35% of the overall sales (vs. 13% in FY20)
c) Tata Steel Limited: Exports contributed at 11% (1.9mt) of overall deliveries. 

As rating agency Crisil the momentum of high exports of steel is expected to continue and push finished steel exports  another 12-16%higher this fiscal. China’s recent move to withdraw export rebates of 13% on 146 steel products, along with rising international steel prices is likely to increase export from India more in the coming quarters. According to ICRA,China’s domestic HRC price is close to $900/MT in end-April 2021, its export HRC prices stood at $915/MT. Without the export rebates of 13%, there would not be any major incentive for Chinese steel mills to export in large quantities at these prices. While India’s export HRC prices as of May 1, 2021, were trading higher than Chinese export HRC prices at $950/MT, Indian steel exporters are earning better realisations in the export markets than close to $900/MT earned in the domestic markets. 

In the meantime, SME engineering exporters has requested PM's intervention on rising steel prices: Engineering exporters in the MSME segment have sought Hon’ble Prime Minister Narendra Modi's intervention on rising steel prices, stating that the industry needs the alloy and other inputs at affordable rates so that export competitiveness of value-added products is maintained in the global markets.

In the said letter that it has  reiterated that many of the competing countries, particularly China, provide support to manufacturing units by providing steel and other inputs at much reasonable prices to boost competitiveness of their engineering sector in the global markets. He said that India is gradually losing out its markets to China in the value added segment of exports and the recent growth visible in exports is largely on account of hike in the prices of metal and commodities.

Representation by Highway construction companies have been made to the Union Government to impose curbs on export of steel, saying domestic prices of the commodity have surged, inflating the cost of projects The impact could be large on the highways and infrastructure construction sectors which are estimated to consume about 65% of the steel produced in the country.

Simultaneously, the Ministry of Road Transport and Highways, however, is worried about cartelisation. Shri Nitin Gadkari, the Hon’ble Minister for road Transport and Highways, had recently written to the Prime Minister’s Office regarding alleged
cartelisation in the steel sector.

Industry body Indian Pipe Manufacturers' Association (IPMA) has sought government intervention to regulate the prices of steel, which are trading at an all-time high in India. In the letter to Government, it has submitted that pipe manufacturers and MSMEs are struggling for a long time due to increased prices and shortage of steel in the domestic market.

It may be noted that other countries in the world have already taken proactive measures to improve supply of steel in the domestic market. Chinese Government has already taken steps to curb exorbitant surge in prices of steel. In April ,2021, It has withdrawn export rebates of 13% on 146 steel products to improve availability of crude steel at reasonable prices in the domestic market.

As the steel sector in un-regulated, the exponential surge prices of steel is remained unchecked. The drive of controlling the market both inward and outward flow of products and maximizing of self-profits is seriously hampering many important infrastructure and constructions projects as becoming financially stressed due to exorbitant steel prices. The survival of MSME sector is at stake and has urged the Union Government for kind intervention. Further, the trend of hoarding of maximum resources by big steel players as evident in the recent auction of mineral blocks in Odisha will continue in future auctions also as merchant miners cannot compete with them in auction of mining leases when final bids are more than 100% prevailing market price of iron ore.

There is an urgent need to view whether winning of blocks at high bids, advantage of having captive natural resource, are being passed on to the consumer i.e. ‘aamadami’ who is entitled for a fair share of natural resources of the nation which could be ensured through cheaper end product, high employment and more revenue to the government from mineral based
industries.

Now, the big corporate s in the steel sector have started policy advocacy to alter the methodology for booking ex-mines prices and computation of average sale price under the name of National Mineral Index. This will result in huge revenue loss to the Exchequers.

Recently JSPL started speaking about pre-emption, when their major supplier mine is soon nearing its end period. The big companies are profiteering and now wish that the State government revenues are also impacted by reducing ASP and thus the Premium, Royalty,DMF and NMET.

In view of this , JANMAT urged the Government  to create an independent regulator for steel to improve supply of steel in the domestic market at reasonable prices to boost major infrastructure and construction sectors and provide competitiveness of domestic engineering sector in the global markets.