Muthuraman: Tight grip

Mumbai, Aug. 23: As other steelmakers answered Ratan Tata’s weekend call to drop prices, Tata Steel went a step ahead to declare that it would freeze the new rates till March 2005 and cap its exports at lower levels.

“The government, our employees and shareholders are our stakeholders. We need to balance the expectations of all,” said Tata Steel managing director B. Muthuraman.

Tata Steel, which sells the bulk of its steel through long-term contracts, intends to pass on the price reductions to customers who are locked in at higher rates.

Those who buy the company’s products from the spot market are not so lucky. This is a segment that buys 30 per cent of Tata Steel’s output in the domestic market. It will be out of the price cut of Rs 2000 per tonne. These buyers will take solace in Muthuraman’s declaration that the price-line will stay at current levels till March.

Explaining why spot buyers had been deprived of cheaper steel, Muthuraman said it is difficult to ensure that distributors and retailers pass on the benefits. Unlike Tata Steel, SAIL, the country’s largest steel maker, has majority of its customers in the spot market.

Tata Steel will also scale down exports, which account for 11 per cent of its sales volumes, as it tries to increase supplies at home in an effort to moderate prices.

Unlike other companies, almost 70 per cent of Tata Steel’s finished products are sold through long-term contracts. “We have taken a historic step to reduce prices. More important, it was a voluntarily decision,” he added.

Asked whether the company had consulted its peers before the reduction, Muthuraman said: “Pricing remains an individual company’s philosophy. Indian Steel Alliance is a body where we do not discuss prices.”

The impact of the cut, which will cost Tata Steel 10 per cent in lower realisations, on profitability will be minimised by intensifying measures that result in cost savings.

On Sunday, Ratan Tata had urged the steel industry to stand together, display moderation, and desist from making exploitative profits to arrest inflation, which could negatively impact the current growth rate.

Some analysts said the dramatic reduction on the part of Tata Steel — whose prices vary between Rs 26000 and Rs 32000 a tonne — were redolent of war-time measures.