Steel companies face CCI scrutiny for alleged price cartelisation

No less than Union Road Transport Minister Nitin Gadkari in January alleged that steel companies were indulging in cartelisation. "Every steel company has its own iron ore mines and there has been no increase in labour and power costs but they are increasing rates. It is difficult for me to understand (the reason behind it)," the minister said, and later suggested that a regulator should be appointed for the industry.

The CCI is investigating if the steel companies had colluded to increase prices after June 2020, said the people cited above. That was when the Indian government imposed anti-dumping duties of $13.07 per tonne to $173.1 per tonne on imports of the flat-rolled product of steel, plated or coated with an alloy of Aluminium and Zinc' from China, Vietnam and South Korea. The prices have gone up nearly half since then.

The Union Budget 2021 waived off the anti-dumping duty on the same products—among many more—until September 30, 2021.

The government had also proposed to reduce customs duty to 7.5 percent on imports of semi-, flat and long products of non-alloy, alloy and stainless steel.

"MSMEs and other user industries have been severely hit by a recent sharp rise in iron and steel prices. Therefore, we are reducing Customs duty uniformly to 7.5 percent on semis, flat, and long products of non-alloy, alloy, and stainless steels," Finance Minister Nirmala Sitharaman had said in her Budget speech.

Moneycontrol has reached out to the CCI and will update the story once it responds.

Queries have also been sent to Tata Steel, JSW Steel and ArcelorMittal/Nippon Steel. The story will be updated once they respond.

The price hike

By November 2020, steel prices had increased by about 45 percent, from their June levels. Prices of hot-rolled coil steel had crossed the Rs 50,000 per ton-mark. A similar increase was seen in other steel products, including TMT bars that are used in construction companies.

In December, a note by rating company CRISIL said, prices increased further by Rs 13,800 a ton. "We expect steel prices to remain high in the January-March 2021 quarter with a sequential price hike of Rs 7,000- 8,500 per tonne," it said.

Ironically, days after the Union Budget was presented on February 1, prices of flat steel have seen a hike of Rs 1,500 a ton. "Flat steel prices have seen a rise on the back of sustained demand for vehicles," a senior executive from a steel company had said. All the leading steelmakers, including Tata Steel, JSW Steel, and SAIL make flat steel. SAIL and JSW Steel had increased the prices.

At the same time, prices of TMT bars had gone down by Rs 3,500 a ton, with many of the smaller steel producers - who dominate this product segment - increasing their production and thus leading to a heightened supply in the market.

Steel companies had, however, maintained that domestic prices, despite the hikes, remained lower than international rates. Prices in China, Europe and the US - the three biggest markets - were higher than those in India. The CRISIL note, cited above, had noted that domestic prices were still at 6-8 percent lower than global rates.

Indian Steel Association, the industry body, had added that steel prices were necessitated after shortage, and subsequent increase in rates, of iron ore, a critical raw material for steelmaking.

User industry woes

Companies using steel, on the other hand, have been crying hoarse on the increase in the rates. Steel is a key input for several industries, including auto, real estate and construction.

Real estate companies have been fearing a reduction in their margins, up to 6 percent, because of the hike in steel prices. Industry body CREDAI shot off a letter to Prime Minister Narendra Modi in January, alleging that steel and cement makers were indulging in cartelisation.

“With a continuous and sudden upsurge due to cartelisation in the prices of steel, cement and other raw materials, real estate developers are experiencing an inevitable increase in construction cost...Builders are facing an uphill task of further convincing the customers of this additional burden,” Credai had said.

Automakers, including Maruti Suzuki and Mahindra & Mahindra, had talked about a shortage of steel, and increase in rates, forcing them to hike prices of cars and SUVs in January.

Earlier CCI actions

This is not the first time that the Commission is investigating steel companies for alleged cartelisation. In its investigation from 2008, and lasting till 2014, the CCI had probed SAIL and Tata Steel. But later said it found no evidence against these companies.

The Commission has come down more heavily on cement companies, many of whom saw their offices being raided in December 2020. In 2016, the CCI had slapped a fine of Rs 6,700 crore on 11 cement makers, including UltraTech, Ramco, ACC and Lafarge.