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R.Ranganathan M.Sc., [ MBA - IIMA]     Just some blunt, forthright views       on some subjects / outfits

 
     
 

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Indian Government's
 
 
 Steel Cartel
 

 
 
Some Steel makers are forming a cartel
   - if that is true even if politicians in power say that in different tunes
   
  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

These Ministers and the Prime Minister should forthwith resign if what they said is true because they failed 

  Are we getting fooled by the Ministers in Position and a sleepy Press ? Judge for yourself

 

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Financial Results of SAIL strongly indicate            Steel Cartel / excess Profiteering by SAIL / Government Navratna
   
  Sail's advertised 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 - 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

   
  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 excess as 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 have a sleeping Press


  
Fooling the Public - Wholesale Price Index
 
Finance Minister's unsound and illogical assumption
   
  Business Standard, 30th April, 2008, Front page report - Press or Photo copying Machines ? 
   
 
"Steel and Steel products contribute about 21.3% of current Inflation" ?
   
  Government belts out Whole Sale Price Index [ WPI ] which has no relevance to the common man. Consumer Price Index is a more meaningful indicator of inflation for the public. They are fed a lower price index figures based on whole sale prices as if they are going to buy a ton of steel or rice

Steel accounts for about 3.6% of the WPI or 3.6 out of 100. Let us say that the steel price has doubled to 7.2  The total being 100%, distortion due to steel, can still be 7.2 only and not 21.3%. 

If The marginal rise in inflation over the weeks is due to the excess price increases in steel to the extent of 21.3%, it is highlighting a minor part to hide the major factor / bungle if any. It is also a stupid self defeating mad chase.

The items taken into account, the weightage and the methodology in arriving at the WPI is shoddy. They continue to use the defective measuring scale and naturally, decisions based on that can get skewed. Ahuwalia now makes some comments. What was he doing till now ? 

On 2nd May, 2008, cast iron was the factor for 48% of marginal rise. Next week, it can be Air conditioners. Then Vegetables prices go up in Summer / by end May 2008. You chase like a street dog one factor after another without self conviction and thought. Government paying 40% more to employees almost in one stroke does not lead to inflation or ripple effect ! In my view, if the know all Chidambaram is sacked, inflation can come down below 6% 


 

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Mini Budget 29-4-2008     Joke !  Step motherly approach and Lobbying 
   
  The Government reduced the tax to Zero percent from 14% on steel used for Construction

What about Cement that goes into Construction with that Steel ? Go and Cry. Different parameters are used for 2 Industries defying Logic and commonsense. [Cement Industry's lobbying power seems poor] Do you not the step motherly treatment / disjointed efforts. 

 

Additional details who wish to know a bit more /  know the background

 
 
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/-.  [ Iron ore and Lime stone mines prices are not ad valorem / percentage of Sales duties. Do they not belong to the people of India ? On Petrol, Government charges ad valorem duties - different mechanism for no sane reason. refer Petrol Pricing ]

Were they not profiteering till now and helping cartelisation ?  read below


 

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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. SAIL steel is widely used by sectors such as defence, railways, construction, engineering, power, automotive, etc. Sail has plants at Durgapur,  Rourkela, Bhilai, IISCO, Bokaro besides Salem Steel Plant. It has huge captive iron ore and coal mines. [ If 50% of that investment was made in irrigation by Nehru, Indian villagers would have prospered ]

2005-2006   Saleable steel capacity  11.76 million metric tons

2009-10      Saleable steel capacity   21.18 million metric tons


 
 
Raw Material  - Iron ore, Coking Coal - 
   
  the publicised excuses for rise in steel price by Sail too - much less impact than the claim
  Ensuring Raw Materials

The iron ore production has been estimated to go up to the level of 35 MT per annum. The plan includes developing two major mechanised iron ore mines – at Rowghat in the western region and Chiria in the east. Both the mines will be developed with latest technology to ensure assured supply of required quantity of quality iron ore to SAIL plants.

The total coking coal requirement is likely to increase from the current level of 15 MT to around 28 MT by 2010. Plans are on the anvil to enter into strategic investments/ tie-ups for coking coal blocks in India and abroad to ensure assured supply of Coking coal. SAIL’s corporate plan envisages investment in collieries at Tasra, Ramnagore, Chasnalla and Jitpur. [ all in India ]

  will be edited / shortened later

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