Little effect on steel, cement prices

BS Economy Bureau

The freight reductions brought about in the railway budget are unlikely to have any significant impact on the prices of commodities like steel, cement and urea.

Reacting strongly to the changes announced today, Essar Steel managing director J Mehra said: "This budget continues the practice of punishing the steel industry by increasing freight rates on core inputs such as iron ore, coal, limestone etc."

Increasing the freight on iron ore, he said, would have a cascading effect on the cost of finished steel. Though the freight on finished steel has been reduced marginally, it will have a negligible impact because the movement of steel has gradually shifted to road, which now accounts for 60 per cent of the traffic.

Indeed, most steel producers could see their bottomlines being squeezed. RC Nandrajog, vice president (finance), Tata Steel, said: "We use 3.5 times the raw material in producing one tonne of steel. While the industry transports over 60 per cent of finished steel by road and 40 per cent by rail, all its raw materials are transported by rail." Thus, the impact on profits will largely be downward than upwards.

Ispat, on the other hand, is largely unscarred by the latest freight rate changes, because its plant is not coal-based but is an electric arc furnace. What is more, Ispat does not use the rail network.

Says an Ispat spokesman: 'As far as the benefits are concerned, they will not really accrue as the Railways are not the preferred mode of transport. Being situated near the market, it makes sense for Ispat to transport their products by road rather than rail, which would further involve distribution costs."

Arvind Pande, the chairman of the Steel Authority of India Ltd (SAIL), the country's largest steel producer, said that the raw materials for steel making would now cost more due to higher freight rates, placing an additional burden of about Rs 25 crore annually on SAIL.

Apart from this, Pande welcomed the railway budget, which, he said, laid emphasis on new rail tracks as well as rationalisation of freight classifications, 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. The 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 at Bhilai and our other steel plants are fully geared up," Pande said.

The cement industry also does not seem too enthused by the changes brought about in freight rates by the railway minister. Though the freight on cement has been brought down by 0.96 per cent, the government has raised freight for coal by 0.83 per cent.

"Because of this, the impact on prices of cement for the consumers will be marginal. At best, cement might become cheaper by about 50 paise per bag," Jaypee Cements managing director Manoj Gaur said.

"Increase in the freight on coal is adverse, which is likely to result in more and more cement companies preferring to move coal by road rather than rail," JK Corp Ltd managing director Vinita Singhania added.

Fertiliser companies also seem to be a little puzzled by the 5.68 per cent rise in the freight on urea.

"There will be no impact on urea producers as all freight costs are covered in the freight subsidy," Oswal Chemicals and Fertilisers director (finance) Ranjan Sharma said adding: "It is like the government taking from one hand and returning from the other."

Powered by

YOU MAY ALSO WANT TO READ:
The Rediff Budget Special
The Rail Budget 2002-03
The Rediff-Business Standard Budget Special
The Economic Survey 2001-02
Run-Up To The Budget
Money