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  Government's Steel Cartel  

   

21st November, 2009:  This page has been shortened to the main details supportive of the heading. Analysis has been deleted. MRTPC is closed. Press has not reacted so far. That Government will act on its own, without pressure, is a pipe dream

This page is an inferential expose from available facts. For common man, proofs are difficult to get.

 

Some Steel makers are forming a cartel
   
  Finance Minister asserted in Parliament that some steel makers are indulging in a cartel formation. Ram Vilas Paswan said that Essar, Monet Ispat and JSW are fixing prices in unison. In my view, The Government was helping Cartel formation quietly till it suited them.

SAIL, [Steel Authority of India] a Government of India controlled company, is the largest producer of Steel in India. 

Can a cartel be formed or run effectively, without the cooperation of the largest producer ? I do not understand why the Press and others overlook this basic fact and give unbalanced reports.


 

Financial Results of SAIL strongly indicate       Steel Cartel / excess Profiteering by SAIL
   
  Sail's annual Financial reports for 2007 and 2008:     Business Standard, page 10, 17-5-2008
   
  Compared to 2007, 2008 sales is 41571 Crores + 17% higher: Profit 7568 Crores + 21% higher: Consumption of Raw Materials 12435 Crores only + 3% higher: Power and Fuel expenses 2936 Crores Vs 2692 Crores: 9% higher
   
  1. Sales: Sales have gone up by 17% but Raw Material Cost and Power & Fuel bill has shot up by total 12%. [ The sales rise is not accounted by increase in the sales of Iron Ores, as I suspected, if one goes through segment revenue ]

Steel Sales have gone up. But the Indian annual steel sales is going up by 12% per annum. Sail, has done better than the Market despite cost push and no special orders or spurt for any of its products if you check Segment Revenues
   
  2  Profit:  The Profit, if you refer to the above figures, should have been around 5% if the cost escalation in Raw Material and Power has not been covered - The fact is they have been covered far in excess to what was warranted. 

The Profit is much more, if you add up the nearly 2000 Crores extra provisioning done in March 08 Quarter for expected wage revision. 
   
 
Profiteering ?  Sales and Profit are above normal because SAIL also raised the steel prices repeatedly in the last one year. Sail was / became a Saint in April 2008 is unsupportable white wash

Why ? All the steel makers whined about increase in the price of Iron Ore and Coking Coal cost in the last 12 months. All sang in Chorus and in a shrill voice. Sail's Raw Material cost and Power & Fuel cost have not gone up to the extent of the shouts.

The figures prove that. Despite 3+9% = 12% Cost increase, the profit went up by 21.7%. 
   
  Cartel:  The steel makers indulged in Profiteering is very clear, if SAIL is taken as the representative. As all the price raises were effected in near unison in the last 12 months, an unsaid but effective Cartel was in place

Public shareholding in SAIL is less than 15%. Government holds the remaining 85% or major chunk of it.

To sum up, Government ran the Cartel in a way. Sail and the Ministers should pay a price for it. But will they ? No. We are mute millions

  

   

SAIL and Input costs
   
  SAIL, the Government of India controlled company has captive iron ore mines and coal fields. They are fighting for Chiria mines - other contenders include Mr. Mittal. 

Old Iron ore mines have been leased at Rs 25 per ton and the export price of iron ore is 170 Dollars or about Rs 7000/-. 

   

Details from http://www.sail.co.in on 3-5-2008
   
  SAIL is India's largest steel producing company. With a turnover of Rs. 40, 000 crore, the company is among the top five highest profit earning corporates of the country.

 

 
  Errors and Omissions exempted.  If there be any unwanted oversights, mistake in content or suggestions for improvements,  I will be thankful for your feedback  
  Personal website of R. Ranganathan M.Sc., [ MBA - IIMA]    Main / original content: 2008: last minor modification, Aug 20,  2011