Not much different from what we had predicted sometime ago, the global price line for flat steel products had a rather flat movement. The prices of HR coils did not move up by more than $20 per tonne on  real transactions. The euphoria among the steel makers over a possible return of the market to 'normalcy' is over and dead. The big question remains : will it move up any further from now ? Let us look at the positives as well as the negatives before we take up the hard task of arriving at a conclusion.

The overall steel scenario remains as unclear as ever. I had maintained that for price stability in the global market, production of crude steel has to drop at least 3 per cent from the last year's level. If this drop is maintained right through the first three quarters, we may expect a slow rise in prices from the beginning of the third quarter. The February report indicates a drop in the same proportion - month on month. But, for the first two months taken together, the drop is not as much. Therefore, output adjustment has been lethargic till now raising the asking rate even further for the coming months.

Everyone knows this. Yet, the selfish industry with individual interests ahead may not allow this to happen. No individual player is to be blamed for this. Nobody makes steel for charity. They want to make profit for themselves and in that they have play along and by the market forces. The market is competitive - fiercely competitive. It is translucent - not letting anybody know what the others are doing clearly.

The production does not drop quickly enough also because prices have ceased to have much relationship with costs of production. It has gone to the extent that many players in the global market do not even recover their marginal costs. They keep producing as long as they have access to bank or public funds. No matter if they lose money in the process.

Why the market prices may not get the needed boost is that the output cut may be halted half way through. The recent increases have already sent some misleading signals to the industry. Most major players, barring perhaps the Americans and the Japanese, have started believing that the worst is over for them by now. All nonsense. Many steel mills seeing a surge in inquiries have started to believe that it is time for them to raise output. Many of them have done it too.

The steel makers in Europe are still hoping for their domestic market to get stronger.Whereas my projections have been that the steel demand in the region will drop this year ( 2001 ), the recent Eurofer ( The Con-federation of the European Steel Industry ) estimates show a possible 3.1 per cent increase in the same. This, they expect, despite a likely slowdown of the GDP to 2.8 per cent ( from 3.2 per cent last year ). The other major determinant of steel consumption - investment - is also expected to slow down to 4.3 per cent from 4.5 per cent last year. The market in the south east and east Asia is clearly weak. The only major exceptions to the rule can still be China and India. Chinese steel consumption is to increase, albeit slowly. But, even at that, the country would end up importing over 18 million tonnes of steel despite increased domestic production. The Indian market looked promising towards the second half of the year. But, the recent months have not been very encouraging. There are reports of consumption rise slowing down and stocks increasing with the major steel makers.

The fact that the steel prices did not increase any further is enough to prove that the global market is not really turning around. In fact, while there was a small increase for HR coils, the CR sheets and galvanised market in the US lost a couple of dollars. The HR market that looked a little upbeat in February, in fact fell back to the January level with the price of this in the local market dropping back to about $240 per short ton. This is despite a huge production cut by the US mills and the big talks of the US government bringing in safeguard measures under Section 201 of the US Trade Law against all steel imports. In the upstream, the slab prices as well as the steel melting scrap prices have also fallen with not too many takers for those.

The recurrent steel crises have shown that there are reasons to look at the problem from a different angle for a solution. The global steel mart that perhaps accounts for about 150 million tonnes of active international trade at the most with much of it not even be in the category of commodity steel has fallen into unprecedented forces of speculation and wild calculations. It is the dumping ground ( not in the sense one uses the term in anti-dumping cases ) literally for some major steel making nations. It is about a 100 million tonnes or less of commodity steel that governs the entire global pricing pattern. This becomes benchmarks for the domestic markets in different countries. Even if there are no imports, the flurry of offers at low prices from offshore sources make the local producers nervous and they bend to survive and retain market share.  Let the steel makers and the governments in different countries take care of this volume of steel.

There is one way to do so. Have high tariff on steel. Protect the domestic prices ( not necessarily the industry ). Force the steel industry to look inward to their national markets first.

Let us assume that there is a 25 per cent import duty on steel across all steel producing countries. This may not increase the domestic steel prices proportionately. The internal competition will reduce the scope of price increases. Say, the prices increase by about 10 per cent from the base level. This will be enough for the mills toget back to profits and flourish. Everywhere. International trade will drop but not as much.

There are two major implications to this. One, high levels of earnings in the protected domestic market may turn into an incentive for the steel makers having the extra tonnages at the backyard to accept any price and compete in a foreign market that is well protected by heavy import duty. While most sensible steel makers will not do that, there will still be those having huge stocks to sell unable to liquidate their capacities taking recourse to such destructive methods for survival. Quantitative restrictions, brought in partially or in tandem, may solve the problem to some extent.

Two, the steel user industries will certainly not be very happy about it. But, a 10 per cent increase in the cost of steel may not have as big an effect on the user industry as one usually makes that out to be. It is a problem if the advantages of low prices go to a select ones and not to the industry as a whole. If everyone in the user industry faces the same price line, why should they have a problem?

The problem of steel will be there so long there is an excess capacity in the industry. Once the larger and more effective part of that capacity is taken care of by the rising market, the problem will get resolved on its own. Therefore, such measures may be required only for a few years or so. In the mean time, let there be planning as well as action to see that the industry does not regain that extra flab.

Steel, by character,  is a national industry with a global market. Therefore, there cannot be a cure for the industry's woes strictly within a national framework. At the same time, pure global perspectives are unfit for concrete and effective actions.