Business Today Net Special

Steelmakers Forge An Alliance

Courtesy the Confederation of Indian Industry, a number of large steelmakers-Tata Steel, Sail, Essar, Jindal Vijayangar, and Ispat---are forging an alliance to buck the slump and reclaim international markets.

By Ashish Gupta

Tisco's Plant In Jamshedpur

The formation of a loose alliance by the five steel majors---Tata Steel, Steel Authority of India Limited (SAIL), Jindal Vijaynagar, Essar and Ispat---for strategic reasons has not come a day late. The decision to form a trust under the chairmanship of the venerable J.J. Irani, Chairman, Tata Sons. The aim of the trust is to form advisory panels for specific topics, development of a knowledge bank, interface with the government to lobby for policies to boost economic demands for exports and thereby setting the agenda are all developments in the right direction, is imperative today for the very survival of the domestic steel industry.

The trust, which will have an initial corpus of Rs 5 crore, will have on the board CEOs of the member companies, an operational group consisting of working level executives, a full-time media relations persons and one or two executives.

After all, the Indian steel industry has never had it so bad. Already reeling from overcapacity in the domestic market, where demands seem to be falling by the day, the steel majors are also faced with a crisis on the external front. Their biggest export market---the US---has decided to impose massive anti-dumping and countervailing duty on two of its largest selling products---the hot rolled coils (HR Coils) and cut-to-length plates---apparently to protect its own industries hard hit by its own and global slowdown. The US has imposed around 80 per cent import duty on HR Coils and cut-to-length plates of Indian origin. That effectively puts a virtual full stop on all steel export to the US for five years---the stipulated period for which new levies will apply.

With the global steel market in the throes of a recession steel prices too have crashed compounding the problem even further. The going rate of HR coil today is around $175 to $200 a ton (freight-on-board), one of the lowest price for the second quarter (calendar year), when prices are supposed to be the highest. Moreover, prices of HR coil from the CIS countries---erstwhile USSR---are priced as low as $145 a ton. So for the Indian steel industry it is bad news both on the domestic and the foreign front. And it is not easy to find alternate markets in today's scenario.

The only market, where demand for steel is still growing is China, which has become one of the largest steel consuming countries in the world. But with huge global overcapacity---global demand has gone down by 33 per cent in the first eight months of this year as compared to last year, the global production has only down by 1 per cent---it is very difficult to make a dent in this market.

Such kind of alliances again is increasingly becoming the order of the day. In Japan for instance, most steel majors have come together last year to develop a domestic steel market, fight dumping cases together and evolve a common commercial strategy to survive an increasingly competitive world.

But an alliance in the Indian front could only be a loose alliance even if it is a good move. First, because all the steel majors will be competing with one another in the same market in some product or another. For instance, both SAIL and Tata Steel will be competing with each other for the same market---European Union---for its flat products. However, a beginning has been made and a true alliance could ensure the survival of an ailing industry in these uncertain times.

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