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MUMBAI, Feb. 26

THE hike in transport costs for key inputs used in steel manufacture, courtesy the Railway Budget, will have varied impact on leading steel companies.

"This budget continues to use the administrative mechanism to push up the cost of steel making in India, despite measures taken by the steel companies to reduce costs,'' Mr J. Mehra, Managing Director, Essar Steel Ltd (ESL), said.

But at the BSE today, steel company scrips hardly reflected the industry's disappointment. Tata Steel closed at Rs 112.05 (Rs 112.65); Essar Steel - Rs 4.75 (Rs 4.75); SAIL - Rs 5.60 (Rs 5.80) and JVSL - Rs 2.50 (Rs 2.45). Iron ore exporter Sesa Goa closed at Rs 50.35 (Rs 49.70).

Industry sources feel, impact on Tata Steel may be the least given its proximity to coal and iron ore mines. The public sector SAIL, is also well placed as regards iron ore supply, but would take a hit on account of the increased freight charge for coal.

Disadvantage on the coal front is also attributed to Jindal Vijayanagar Steel Ltd (JVSL), otherwise close to iron ore mines in North Karnataka's Bellary belt. JVSL gets its coal and coke by sea at Goa, subsequently routed to the plant by rail.

Essar Steel needs no coal as it uses the electric arc furnace route for steel production. But its iron ore is moved by rail from the Bailadila mines to Visakhapatnam before onward transport by barges to Hazira on the Gujarat coast.

Steel company officials cite a similar hit from iron ore transport accruing to Ispat and RINL, as well.

The difference in treatment meted out to steel and cement in the Railway Budget as also the document's preference to hit at raw materials used in steel, is perhaps not without reason. Over the past few years, steel and cement have behaved in opposite ways as regards their dependence on rail transport, Railway officials here said.

While cement continues to move in large quantities by rail, finished steel transport has been losing to road, the current ratio estimated at 40 per cent by rail and 60 per cent by road. In fact, a company like Essar Steel moves all its finished steel by road while dependence on rail at JVSL is 30-35 per cent.

To that extent it is interesting to note that the Railways have offered a marginal reduction in the rates for finished steel, even as it pinched raw materials, which cannot migrate to road (e.g.: JVSL's coal and coke). Though in the final math the concern shown to finished goods helps dilute the cost hit on the input side, "It has negligible impact, as movement of steel has gradually shifted to road,'' Mr Mehra, said.

"It was a disappointing budget. We hoped to see some difference given the Railway's loss of traffic to road,'' Mr J.K. Tandon, Joint Managing Director & CEO, JVSL, said.

According to Mr Mehra, "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, which will have a cascading effect on the cost of finished steel.

"Besides, the long-standing demand for revoking the inflated charges of 30 per cent on the KK Line has not been met, which alone has led to freight rate being inflated by more than Rs 96 per metric tonne for the Bacheli-Kothvalasa segment.'' (KK Line refers to the Bailadila rail link.)

Away from steel, an official of Goa Mineral Ore Exporters Association (GMOEA) said, he would appreciate clarity on whether iron ore for export also merits the higher freight rate. North Karnataka moves by rail an estimated five million tonnes of iron ore to Goa and six million tonnes to Chennai for onward shipment. Similar transport is also reportedly there in exports from Paradip and Haldia.

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