Financial Daily from THE HINDU group of publications
Sunday, Jun 06, 2004
Industry & Economy
Foundry, pump units seek rollback of raw material prices
Coimbatore , June 5
EVEN as the Indian Steel Alliance (ISA), the association of five hot-rolled steel coil producers, has asked the Centre to keep away from regulating steel prices, the Southern India Engineering Manufacturers' Association (SIEMA), an umbrella organisation representing a large number of foundry and motor pump units in this region, has sought the intervention of the Centre to roll back the prices of crucial raw materials to the January 2004 levels.
It has also cautioned the Government that if the prices of raw materials continue to rise, it would lead to the organised manufacturers losing out to the unorganised players, which would have major revenue implications for the Government.
Mr G. Rajendran, President, SIEMA, told Business Line that the basic price of electrical grade cold rolled non-oriented (CRNO) sheet has gone up from Rs 33,000 a tonne in January 2004 to Rs 38,000 now. This product was the monopoly of two players the public sector Steel Authority of India Ltd (SAIL) and a private manufacturer. There has been a continuous increase in the prices of this raw material for more than a year.
He said the pump manufacturers were already reeling under the impact of a 30 per cent negative growth in demand in the agricultural sector and 20 per cent fall in demand in the domestic sector. The unorganised sector enjoyed a near 30 per cent price difference compared to the organised players since the latter were saddled with 8-10 per cent sales tax levy, 8 per cent excise duty and overhead expenses of about 10 per cent.
The share of the unorganised sector in the pump market was in the range of 40-50 per cent depending on specific segments. In some States like Andhra Pradesh, unorganised sector enjoyed more than 70 per cent market share, despite the fact that their pumps were energy-inefficient.
The SIEMA President feared that a continued uptrend in the prices of CRNO sheets would drive some of the manufacturers to opt for lower quality electrical grade sheets that would push up the energy consumption of the pumps.
The organised pump manufacturers were facing resistance to price increase and if they scaled down production in view of persistent increase in raw material prices, the Government also may face loss in revenue.
Joining issue with the ISA, which has made an appeal to the Union Government not to make any market intervention and allow market forces to prevail, Mr Rajendran said, "We want Government intervention".
He pointed out that since there were only a handful of manufacturers in the steel industry involved in the production of raw materials required by the engineering industry, any decision to hike prices by SAIL was picked up by others. But the user industries did not enjoy the privilege of increasing the product cost to match the increase in raw material prices.
He said though the price of pig iron has softened now, it was still higher at Rs 22,500 a tonne now compared to Rs 18,000 (landing cost) in January.
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