The Hindu Business Line : Steel industry hit by hike in key input costs

THE Railway Budget provisions are being seen as a mixed bag for the steel industry, which is already in trouble. While the increase in freight tariff for major inputs like iron ore, coal and limestone proposed in the Budget has hit the steel industry badly, a reduction on freight rates applicable for finished steel products may benefit the consumer marginally.

The largest steel producer in the country, Steel Authority of India (SAIL), will now have to bear an additional burden of around Rs 25 crore annually as a result of the increase in input costs while the total burden for the industry is estimated to be about Rs 40 crore to Rs 50 crore, according to preliminary estimates.

The SAIL Chairman, Mr Arvind Pande, said: "We are happy that the Railway Minister has reduced the high freight burden being borne by iron and steel items. Moreover, the reduction in freight applicable on longer distances will help in making steel materials more competitive in far-flung markets. However, the raw materials for steel making will now cost more due to higher freight rates, placing an additional burden of Rs 25 crore annually on SAIL.''

The Tata Steel Managing Director, Mr B. Muthuraman, said that for Tisco, the increase in input costs due to increased tariff rates for key inputs will actually balance off with the reduction of tariff rates for finished steel.

"The good news is that freight on steel has come down while the bad news is that some input costs will go up. While the increase in input cost has to be borne by the company, the lower tariff on finished products will have to be passed on to the consumer,'' he said.

Mr Muthuraman also welcomed the introduction of warehouses in railway terminals saying that this is a very important step and it is possible to set up these facilities within the span of a year.

The Managing Director of Essar Steel, Mr J. Mehra, said, that "The Railway budget continues the practice of punishing the steel industry by increasing the freight rates on core inputs such as iron ore, coal and limestone. The industry's demand for classifying steel inputs such as ore under 100 instead of 120 has not been met. Instead, there has been an increase of 0.44 per cent in the freight rate of ore. This will have a cascading effect on the cost of finished steel.''

"Even though freight rates on finished steel have been reduced marginally, it has a negligible impact as movement of steel has gradually shifted to road with more than 60 per cent of the volumes,'' Mr Mehra said.

The railways also continue with the cross-subsidisation of freight rates, and thereby hurting the steel industry, he said.

The SAIL Chairman, however, is enthusiastic about the importance given to railway tracks and the proposal for safety fund.

"We welcome the Rail Budget 2002, which lays an emphasis on laying of new railway tracks as well as rationalisation of freight classification which was long overdue. The setting up of the Special Railway Safety Fund is a much-needed measure, as it will facilitate track renewal and replacement. Railways being a major user of steel, the expansion programme will generate higher demand for rolling stock as well as rails, for which the country's only rail mill in Bhilai and our other steel plants are fully geared up,'' Mr Pande said.

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