A meeting was held today between the Prime Minister of India and the major steel producers with regard to the steel pricing and related issues of the industry vis-a vis the inflationary trends in the country. The steel producers committed themselves to reduce the prices of steel products and hold them for the next 3 months.

The steel producers laid out the international and national steel price scenario and the increase in input costs for the industry before the Prime Minister. They pointed out that the steel prices in the world are at an all time unprecedented high due to steep increase in the prices of iron ore, coking coal, ferro-alloys and other inputs as well as due to the strong growth in steel demand driven by China, India, Russia and other emerging markets. International coking coal and iron ore prices went up by Rs 8000 per ton and Rs 2500 per ton respectively, with a combined impact of approximately Rs 10,500 per ton towards cost of steel making in India. This did not include cost increases in freight, ferro-alloys, manpower and other items. The impact on steel production costs in India will therefore be between Rs 8000 to Rs 14000 per tonne. Thus, even with these steep increases, domestic steel prices are still lower by about Rs.4000/- to Rs.6000/- per tonne as compared to prevailing international prices.

Notwithstanding the above, the Steel Industry fully shares the Government's concern relating to increase in steel prices and consequent impact on inflation. The Steel Industry is committed to support the Government's endeavor to moderate the rise in inflation. As a responsible & responsive industry, primary steel producers shall immediately take the following measures with immediate effect:

• Prices of Flat products will be reduced by Rs. 4000 per tonne by producers who affected price increases in April '08. In addition, prices of rebars and structural, where no increase was effected in April / May'08, will also be reduced by Rs 2000 per tonne.

• These will not be applicable for long term contracts, where steel prices have not been revised till 31st March'08, due to contractual obligations.

• These will be applicable for all steel that gets consumed in India either directly or after further processing.

• Further, the Steel Producers will hold these prices for the next three months.

As the steel industry undertakes to reduce prices in spite of steep increases in costs, Tata Steel, SAIL and the other steel producers put forward their proposals to the Government. They committed to roll back prices, absorb the increase in input costs and exercise restraint in steel exports and urged the Government not to impose export duty on steel exports. The producers suggested that to address the issues in the long term some immediate steps need to be considered. Some of these are:

• Facilitation for creation of fresh steel capacity by allocation of iron ore mines and natural gas, on priority, to the existing and proposed steel plants and also resolution of legal, environmental and forest clearance issues relating to setting up of new capacities, in a time bound manner, be done by setting up an Empowered Committee.

• For the long term competitiveness of the Indian Steel Industry, which depends heavily on conserving India's minerals and using these to manufacture value-added finished products within the country, it was suggested that an ad- valorem duty of 15-20 % FOB on export of iron ore should be levied.

• Appropriate reduction in excise duty on steel should be considered, the benefits thereof will be passed on to the consumers.

• NMDC should roll back increase of about 47% in prices of iron ore made effective from 1st October 2007, and should maintain the same prices post April 2008. Merchant miners should also sell iron ore at NMDC benchmark prices to the domestic steel producers.

• NMDC, KIOCL and other PSUs should give priority to domestic steel producers for supply of iron ore and pellets, before undertaking exports.

• MOIL should reduce prices for manganese ore to the level which would cover increase in their production costs and also provide priority allocation to domestic steel industry.

• Similarly, Coal India Limited should maintain prices of coking coal at last year's level.

• Auction of manganese ore and iron ore by MOIL & NMDC is attracting speculative prices in the domestic market, and should be stopped.

• Freight on steel making raw materials and on steel products should be maintained at current levels/classification.

The Government has responded positively to the suggestions and the Indian Steel Industry, who have assured the government of its commitment to the hold the reduced prices for a period of three months to enable the government to contain inflation in the country.