10 December 2003 23:09
Rail Freight Rate Hike For Cement, Steel, Iron Ore Likely
The Railways may go in for a marginal increase in freight rates for steel, iron ore and cement in the forthcoming
budget. These commodities are already rated high on the freight base followed by the Railways. Both steel and cement
industry have in the past complained of high freight rates but railway officials feel that a marginal increase will not
make any difference to these sectors. Senior officials said the boom in steel sector, which has led to high movement of
iron ore for domestic and foreign markets, was likely to continue for the next few years. "We believe that a hike
in freight rates of iron ore and steel can be easily absorbed by the industry since their profit margins have increased
manifold," said an official. In the case of cement, it is a highly sensitive commodity as far as freight rates are
concerned. Cement companies are quick to take to road in case of railway freight rates being marginally higher than
road. With freight rates for cement reduced last year and the market showing signs of recovery, officials feel a hike in
freight rate for cement will not be counterproductive. "The hike can be reversed later if it is found to be
heavy," said an official. Sources said the hike in freight rates of these commodities is only at a proposal stage
at this point. On the scale of 100 where the railways break even, steel and iron are classified 180, pig iron 160 and
cement 135. The classification for all these commodities was reduced in the last budget which effectively led to a 5.3
per cent reduction in freight for steel. The Railways is unable to meet the earnings target for freight in the current
year despite carrying more volumes due to reduction in classification of some commodities. This has made the Railways
think in terms of putting the three commodities into a higher category for the next year. Steel demand is rising on
accelerated infrastructure activity both within the country and outside - in China, United States and Europe. China is
the biggest importer of iron ore from India. "It is preparing for Olympics in 2008 and therefore construction
activity in China is likely to continue," said an official. In US, the demand is led by the booming housing
industry. Additionally the auto industry is showing signs of recovery. In Europe, there is demand from a buoyant housing
and white goods industry. Russia and other CIS nations are also witnessing strong internal demand while reconstruction
work in Iraq is expected to fuel steel demand further.
[AIW [Asia Africa Intelligence Wire]] |
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