E-xchanges promise an efficient, transparent platform for the steel market. The flipside: they are also largely uncharted waters.

By Ranju Sarkar

Look to your right: these are not your typical men of steel, overalls, arms folded, smiling in front of large furnaces that spit out red-hot ingots. The head honchos of India's virtual steel exchanges are staring at a dream. Between them, these e-xchanges have transacted business worth a piffling Rs 50 crore. But they vow to transform the way India's Rs 65,000 crore steel industry functions.

A roll call is in order, to give a sense of the activity in the on-line steel industry. The early entrants: steelexchangeindia.com, promoted by Pyxis Technology and Vizag Profiles, a steel trader; clickforsteel (the Essar Group); steelrx.com (Anurag Saraf of Facror Alloys Corp. and a clutch of professionals); ispatudyog.com (Udyog Software). And there are several others joining the bandwagon: metaljunction.com (promoted by Tata Steel, Steel Authority of India, and Kalyani Steels); isteelasia.com (a Hong Kong-based portal); steelkingdom.com (Tarun Somany, a Calcutta-based trader of Thyssen Krupp).

These sites aim at removing intermediaries synonymous with steel, and bringing in transparency through better sharing of information. Says Arjun Bharatan, 31, CEO, Clickforsteel (CFS): "The idea was to have a platform where there's a fair determination of the market price." But the hurdles ahead are not just Net-related. There are also issues unique to the steel industry.

Trading On Efficiency

The opportunity: globally, spot sales are likely to go up from 60 per cent to 80 per cent by 2003, as steel gets more standardised and commoditised; in India it accounts for 55 per cent. Says Anurag Saraf, 29, CEO, SteelRx: "The availability of steel, the demand-supply scene, and the need for better price-realisation would increase steel trade in India." Besides, there is ample scope for cutting out supply-chain inefficiencies through such e-xchanges.

Experts estimate up to 30 per cent savings in costs through better forecasting. Says Bharatan: "Nearly 40 per cent of steel in India finds its way from some intermediary or the other. And therefore, there are price arbitrage opportunities ranging from 5 per cent to as much as 20 per cent." Moreover, these exchanges are also targeting excess inventory at any given point of time-companies saddled with excess stocks of 15-20 per cent, which can together add upto 2-3 million tonnes.

Trading On Services

The more established players are trying to offer complete e-solutions. While SteelRx has tied up with Swiss major Societe General Surveillance for quality inspection, Dutch firm Debt Norsk Veritas will do that for CFS. Then, most are planning to offer content-prices and freight rates. They also plan to host and develop a Net-enabled CRM model, which could prove to be another revenue stream.

But not everyone's buying. Says Mehta of ispatudyog.com: ''Third-party inspection would cost another Rs 100 per tonne. Nobody would be interested in paying that.'' Thus, in these early days, the e-xchanges are giving incentives and equity on the exchange. For instance, CFS has a equity bonus scheme, whereby 16 preferred partners have committed to sell 7,50,000 tonnes of steel through the exchange. In return, a portion of the commission earned will be given back to the partners as CFS shares. And yes, most have waived off the membership fee for the first six months.

So, the revenue models are commission-based, as the services category will take time to catch on. Most exchanges look at commissions, revenue-sharing with service providers, and hosting and developing of Net-enabled CRM model for members. For instance, CFS' projected revenue mix is in the ratio of 65:20:10:5, with advertising taking up the rear.

So commissions it is, for the moment. Typically, exchanges have a staggered scheme, depending on the volumes traded. For instance, SteelRx has a commission range of 0.5-1.0 per cent. Asks Mehta of ispatudyog: ''People will not accept the percentage fee structure. Everybody has to come up with a flat fee structure.'' That's what his e-xchange has done (Rs 600 per year, irrespective of the volume transacted).

Trading On Hope

Is there a room for so many e-xchanges? Not really, though some believe they are going to be region-based, where the servicing is possible. Says Satish Kumar: ''There's scope for everybody, if they can provide value-added services.'' Differs CFS' Bharatan: ''I don't see more than two to three exchanges surviving. And that would depend on what value the producers and sellers see in the exchange and the volume of material traded.''

And, volumes will come only if the primary producers participate in the exchange. Concedes Mehta: ''They are not keen on joining. And that's the biggest problem we are facing. Most primary producers of steel (SAIL, TISCO, Jindal Viyayanagar, and Ispat Industries) are not willing to join in. Rather, they are keen on setting up their own e-xchanges. The sole exception: Rashtriya Ispat Nigam, which has joined steelexchangeindia.com.

Well, most primary producers think they have the liquidity and can drive the market. Which is why SAIL, TISCO, and Kalyani Steel are promoting metaljunction.com. Says Bharat Wakhlu, 41, Assistant General Manager (e-commerce), Tata Steel: ''There's merit in having a third-party marketplace.'' For, producers are wary of sharing price-related information on e-xchanges, especially ones promoted by competitors.

Moreover, trading in steel is governed by traditional ties. Changing behavioural patterns is a challenge. Almost 7-8 million tonnes of steel is produced through the induction-furnace route. many of these sellers don't pay any sales tax and evade excise tax. As e-commerce makes deals transparent, these sellers may not be willing to go on-line. Adds Jain of Jaicorp: ''The trading pattern in India is different. Internationally, e-commerce works well as you have big stockists. In India, you have small traders who are feeding a local area and have 10-20 million tonnes, and that too, of a mixed variety.''

As trust and credibility will be crucial, the chances of neutral models working are higher. Says A.S. Firoz, 40, Head, Economic Research Unit, Ministry of Steel: ''e-commerce has to go through a lot of confidence-building measures.'' As the country's on-line steel exchanges are well aware, building confidence is tougher than, well, making steel.

Issue Contents  Write to us   Subscriptions   Syndication 

INDIA TODAY |  INDIA TODAY PLUS | COMPUTERS TODAY
TEENS TODAY | NEWS TODAY | MUSIC TODAY | ART TODAY | CARE TODAY

© Living Media India Ltd