Backs to the wall

Jack Ramoutarsingh is fuming over what he says is Ispat’s arbitrary flexing of its monopolistic muscle. As chairman and CEO of Trinrico Steel and Wire Products Ltd, he has to stand by and watch his company lose about $300,000 per month because of the high price that he has had to pay Ispat for steel. Ramoutarsingh, who is also an active member of the Downstream Steel and Wire Rods Association (DSWRA), claims that within the last 12 months, Ispat has increased its prices five times from US $245 to US $300 per metric tonne. This, he claims, is about US $25 above the average world price. Billets are currently sold at US $245 per metric tonne. Ispat officials have refused to comment. Ramoutarsingh said his company, along with the the other eight downstream steel producers, only found out about the latest price hike last month; downstreamers were also told that Ispat will no longer be accepting credit, and now had to pay cash. “There has always been and continues to be a marked difference in Ispat prices for wire rods versus world market prices,” Ramourtarsingh said in an interview last week at his office on Coffee Street, San Fernando.

Ispat’s price increases, Ramoutarsingh said, not only threaten the existence of the local downstream steel manufacturers but also the 2,000 workers employed at these mills. He predicts that if the issue is not addressed soon, prices of steel products could go up.  Steel accounts for 20 percent of the cost of residential buildings and 30 percent in the case of commercial buildings and industrial plants. Government’s low cost housing project could also be jeoparsidised, as the costs for material will go up. In fact, the contractors involved are already complaining, as they operate on a fixed cost basis. Members of the Hardware Dealers Co-operative Society have now joined the Downstream Steel and Wire Rods Association in an attempt to get Ispat to back down. The increases, they say, are having a spiral effect with the cost of nails, roof sheetings, BRC wire, wire rolls and steel rods. Ramoutarsingh said he had hoped to see a drop in steel prices after the Iraq war, but Ispat, he added,  is only willing to drop the prices by about US $10 per tonne. Minister of Trade and Industry Ken Valley has given the producers the assurance that he will speak with Ispat soon on its pricing policy. “Ispat increases wire rod prices at no fixed interval, it is increased monthly, bi-monthly, quarterly, whatever suits them and the notice is given in as little as two days,” he argued. Ispat’s pricing policies, he claimed, have also forced two steel producers out of business. Ramoutarsingh himself has also had to close down one of his plants and stop the expansion on his current plant. Ispat’s arbitrary pricing strategy, Ramourtarsingh said, started ten years ago when Government sold ISCOTT to Ispat. He said at that time Government did not pay any attention to the contracts the steel producers had with ISCOTT and did not make any new contracts with Ispat. “ISCOTT should have given instructions to Ispat that they should continue selling us wire rods and billets at international prices or what they (ISCOTT) was selling us at. But they did no such thing.” Downstreamers took matters into their own hands in 1994 and formed an association and immediately appealed to then line Minister Ken Valley who took the matter to Cabinet.

But Ramoutarsingh was shocked when the Maning government recommended a 25 percent increase above the world market price. The matter was taken to court and the judge ruled that billets be sold to steel producers at world market prices. However, at that time only two of the 11 steel producers used billets, the other nine used wire rods. So Valley assured the producers that he will continue negotiations on wire rods. Additionally, Ramoutarsingh said, Lakshmi Mittal, owner of Ispat and several other steel mills around the world, promised the steel producers that Ispat would sell them at international prices and even offered to send his engineers to their plants to give them some assistance in upgrading their facilities so that they could sell more of his products and promote TT. At that time, steel became the second largest earner of foreign exchange in TT; now it is the third largest earner outside the petrochemical industry. Ramoutarsingh charged none of Mittal’s promises materialised and steel producers are still being charged much higher than international prices. “They are selling international markets at world prices to be competitive but at the same time they are charging us more,” noting, “that could never be fair.” Ispat produces about 900,000 tonnes of wire rods per year and another 72,000 tonnes of billets. In TT, Ramoutarsingh said, downstreamers use less than one third of Ispat’s output, the rest is exported. In November 2002 world prices stood at US $182 per tonne but, Ispat was still charging local producers at $255.

Ramoutarsingh said the industry could have survived at that price, “ because Ispat was selling at US$200 in the US.” Then came the other price increases and the local producers just could not keep up. In addition to the random price increases, Ispat has also suspended all the purchasing of wire rods even though the manufacturers have been providing “costly” bank guarantees to support the credit for over 12 years. “We had to pay the banks $45,000 to establish a letter of credit and we lost that,” noting that this happened while manufacturers extended credit to customers to compete. Ramoutarsingh said while they have considered exporting the raw materials, he explained that TT has the highest port charge in the Western Hemishere. Additionally, he said the Pt Lisas port is always filled and even if they wanted to import from countries like Turkey, the depth of water at the harbour is too shallow. “Ispat is using that as their big stick to fix their price, because they know that if we want to import, it will be hell because we have to wait three months and pay additional costs,” he said.

Ramoutarsingh charged that Ispat does not pay duty, pays no VAT on foreign exports and also gets concessions on gas. “We export over 60 percent of what we make and we have to pay duties and VAT and other additional costs.” He said Ispat’s pricing structure makes the local producers uncompetitive in the larger Caricom markets and the extra-regional markets to which most of the companies export because they start with the disadvantage of a higher raw material price. “In other words,” he said,” “ the playing field is not level.” He said even though trade agreements were signed between the Dominican Republic and Caricom, and a bi-lateral agreement between TT and Costa Rica, they still cannot export to these markets because of uncompetitive wire rod prices. Jamaica, he said, imports all of its steel products from Brazil and Turkey noting they they negotiate very competitive prices and pay no duty . Jamaica is Ramoutarsingh’s biggest market. Further, the Free Trade Area of the Americas (FTAA) would soon be in effect which would give local manufacturers the opportunity to export products duty free to countries in South, Central and North America excluding Cuba, a total of 34 countries. Ramoutarsingh said if they are not competitive then they will not benefit from the FTAA. Manufacturers, he added, have to take steps now to do whatever is necessary to enhance competitiveness, and this includes sourcing competitive raw materials. “All we are asking is that Ispat level the playing field,” Ramoutarsingh said. Ramoutarsingh said they are not asking Ispat for favours but want equitable treatment. “We have invested hundreds of millions of dollars in plant and equipment and employ over 2,000 people. If  Ispat is allowed to sink us with their high prices, this country will suffer tremendously,” he believes.