Inflation Bites-Govt Sets Up New Panel To Monitor Prices

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The Government on Thursday decided to set up a committee to monitor movements in steel and raw material prices, indicating a tough stance on an issue that has taken centre stage with inflation touching a worrisome level.

Manufacturers, however, said prices of steel would unlikely fall as they had fewer options than passing on the rising costs of raw materials, such as iron ore and coke, to consumers.

JSW steel, Uttam Galva Steels, Ispat Industries have already raised prices by 15 to 20 percent.

Steel companies claim they have been paying much more for iron ore and coke, because their prices in the global market have surged several times over the past year. The spike has been driven by China, where the economy is growing close to 10 percent and demand for steel ahs got an extra boost from Olympic games related constructions.

The long-term contract prices for international coking coal have increased by more than 200 percent, while iron ore prices are being revised in a month. This may force us to hike the prices again, said a senior official at a major steel firm.

Some said the problem with the steel companies was that they were paying much more in the spot, where iron ore prices were as high as $190 per tonne. Under the long-term contracts, steel makers are currently paying $75 per tonne, he said. Som said, more than iron ore prices, steel have been hit hard by cost of coke, which has increased 300 percent.

The government on Thursday rejected the argument by steel makers that deficient domestic supply of iron ore were responsible for high prices of the finished product.

“The country has enough iron ore to last for 200 years. The steelmakers should adopt technologies to be able to use low-grade iron ore. If you come up with right technologies then you could conserve ore in right perspective,” Mines secretary JP Singh said.

Domestic steel consumption is growing at the rate of the 6.6 percent growth in supply (during April-December period). The domestic supply deficit will be in the region of 6.5 million tonne, which will have to be imported.

The government is mulling a fresh set of fiscal measures including a possible reduction in import duty of steel and suspension of futures trading in iron to tame rising price line. A proposal to suspend futures trading in iron and steel is also being examined.

Analysis said the government action would remain an overhang on steel company valuations. According to analysts, the steel companies are under margin pressure.

“We are witnessing 50 percent to 30 percent increase in various raw material prices. This will have a negative impact on steel manufactures’ balance steel. Margins of non-integrated plays are under pressure even now,” said Pawan Burde, metal analyst, Angel Broking.

Policy makers and economists would be closely watching the latest inflation data on Friday.the wholesale price based weekly inflation rate touched a three-year high of 7 percent on March 22.

A Reuters poll of 10 analysts predicts Friday’s data to put the inflation rate for the week ended March 29 at. 7.03 percent. Over the last three weeks government data has consistently surpassed analysts expectations.

A sustained spike in prices of food and metals, especially steel, worldwide is driving inflation at home. The problem in India has been aggravated by food supply shortage stemming primarily from sluggish growth of the farm sector.

Supply shortages have been most pronounced in edible oil, rice and some pulses. India imports about 50 percent of its edible oil requirements and wit global prices rising, the retail prices rising, the retail prices in Indian have also risen in tandem.

The food and agriculture organization (FAO) food price index, which combines national prices as well as those inn crossborder trade, showed that the average index for 2007 was nearly 25 percent above the average for 2006. Apart from sugar, nearly every other food crop has shown very significant increases in price in world trade over 2007.

Latest data indicates the trends is likely to continue in the next few moths.

Source: Hindustan Times

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