ONE of the most contentious battles in the war against inflation is being fought in the steel sector. Various ministries in the government of India are taking opposing views on measures to be adopted to control the price of the metal, and even different industries have adopted contrasting stances.

The finance, commerce and steel ministries have failed to hammer out a unified strategy to counter the sharp hike in the price of steel, even as opposition parties and the Left supporters of the United Progressive Alliance government demand stern action against steel producers.

But despite the national uproar, steelmakers are pushing ahead with price hikes. Last week, yet another steel major, state-owned Rashtriya Ispat Nigam Ltd, hiked the price of all its products by Rs6,000 a tonne. Inclusive of excise duty, the hike works out to Rs6,840 a tonne.

Steel manufacturers, including private sector majors like Tata Steel, Essar, JSW Steel, Ispat Industries and Uttam Galva, had a few days earlier imposed a Rs5,000-Rs6,000 a tonne raw material surcharge on hot-rolled, cold-rolled and galvanised coil products. Some like Tata Steel have rolled-back the hikes following pressures from the steel ministry.

Steel Authority of India Ltd (SAIL), another state-owned giant, is undecided but could end up going in for a Rs5,000 tonne hike, according to sources in the industry. SAIL is also facing a huge increase – of up to 40 per cent – in the price of coking coal that it buys from state-owned Bharat Coking Coal.

Another state-owned giant, NMDC Ltd, has also raised the price of iron ore by 70 per cent – with retrospective effective from October last – hurting steel producers like Essar, Ispat and JSW, who do not have their own captive mines.

Indian steel producers point out that prices here are still lower by about $100 a tonne as compared to international prices. They also cite sharply escalating input costs for the hike in steel prices. The cost of iron ore and coal has seen hefty increases both internationally and in India, triggering off a price hike here.

Global steel majors including ArcelorMittal, Nippon Steel and Posco have had to jack up prices following steep escalation in the price of coking coal and iron ore. ArcelorMittal has had to face a 220 per cent hike in coal prices, while Posco has been slapped with a 300 per cent increase in coking coal prices, besides a 65 per cent escalation in iron ore price.

Domestic steel prices have soared by over 20 per cent so far this year – steel futures have seen a massive 50 per cent increase – but threats of stringent action by the steel ministry have seen some of the producers roll-back the prices. Under pressure from the government, steel producers have refrained from raising the price of flat steel products – used by white goods makers and auto manufacturers – but have increased the price of construction-grade steel.

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THERE has been growing pressure on the government to force steel producers to slash the recent hikes. The Automotive Component Manufacturers Association of India has warned the government that parts exports would be seriously hurt if measures are not taken to curb steel prices.

Most auto components – including engines and engine parts, transmissions, gears and suspensions – use steel; a 30 to 50 per cent hike in their price would render the Indian auto component industry uncompetitive in the international markets.

Even automobile manufacturers have been urging alloy steel producers to moderate their price increase. Steel ministry figures indicate that the price of the benchmark 2 mm hot-rolled coil — widely used for the production of auto-grade steel — jumped by Rs10,000 a tonne in the spot market over the last one month.

Worried over the impact the hike in steel prices will have on inflation — the wholesale price index breached a 41-month high of 7.41 per cent for the week ended March 29 — the government has been itching to take on the steelmakers.

Finance Minister P. Chidambaram, who was severely criticised in Parliament last week by the Left parties and the opposition for not taking the appropriate measures to curb inflation, accused steelmakers of behaving like a cartel. “If their behaviour does not change, the government will not hesitate to take tough measures,” warned Chidambaram.

The Left parties have been urging the government to ban futures trading in steel – along with several agricultural commodities – to curb inflation. While many political parties have been urging the government to ban futures trading, B.C. Khatua, the chairman of the Forward Markets Commission, is opposed to any such moves. “The volumes of steel futures traded are insignificant to influence the physical market prices,” he explains.

The cabinet committee on prices is formulating various policy measures to curb inflation, including imposing a ban on steel exports, slashing the duty on steel and zinc imports to zero, jacking up export duties on iron ore and reducing the countervailing duty on construction-grade steel.

However, there are serious differences between the finance, commerce and steel ministries over these crucial measures. The commerce ministry is opposed to any hikes in duties on iron ore exports, as it fears that the long-term commitments entered into by mining firms with overseas buyers will go awry. But the finance ministry is insistent that if excise duties on steel products are to be cut, then it would have to hike the export duty on iron ore, to compensate for the loss in revenues.

Ram Vilas Paswan, the steel minister, wants a ban on exports of hot-rolled coils, an imposition of 10 per cent duty on cold-rolled coils and five per cent on galvanised steel. Paswan has also assured the Left parties that the government would consider their plea for a ban on futures trading in steel.

And Paswan also played up to the leftists, by telling steelmakers to cut down on their profits. “We want to tell the steel industry that your profits have increased despite a rise in input costs. You should now think of reducing your profits,” he added. The minister says the government might, as a last resort, bring steel under the purview of the Essential Commodities Act to curb its prices.

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THE powerful domestic steel industry is, however, not taking things lying down. The Indian Steel Allliance (ISA) has written to Prime Minister Manmohan Singh, pointing out that a blanket ban on exports would hurt many producers who have set up export-oriented plants.

The ban on exports will hardly have any impact on inflation, the alliance says. Just around eight per cent of India’s total steel production is exported, so banning it would not make much sense. Also, most of the items that are exported do not have a ready market in India, or are available abundantly.

Worse, while the government encourages export of raw materials (iron ore), it would be banning the export of the value-added finished product (steel items), which could be a travesty.

Notes Venugopal Dhoot, president, Associated Chambers of Commerce and Industry of India (Assocham): “It is ironical that we continue to export freely a very important raw material, iron ore, with a nominal export tax, and the end-product, steel, is being banned from export.”

Assocham points out that the move to ban exports would affect the credibility of the Indian steel industry internationally. “International buyers will seek other markets and India will lose its share,” says Dhoot. “It will again take years for us to regain the markets.” Besides, Indian steelmakers would be dragged to court by international buyers, even as the products made for them would pile up in warehouses in India.

India produces about 56 million tonnes of steel annually. According to the International Iron and Steel Institute (IISI), demand is expected to grow by 8.9 per cent this year and 12.1 per cent in 2009. India, along with China, Brazil and Russia (the four so-called BRIC nations), will be driving growth in the global steel sector, points out the IISI.

Global steel consumption in 2008 is expected to grow by 6.7 per cent to 1,282 million metric tonnes, and next year by 6.3 per cent. This, despite a sharp slowdown in the US and other Western economies.

But steel prices are unlikely to fall this year and next, as there is hardly any addition to capacities over the next two years in India.