Tyre & steel cos face probe for cartel bid

NEW DELHI: Taking its fight against inflation forward, the government has asked the fair trade regulator MRTP Commission to probe into suspected cartel-like behaviour among major tyre and steel makers. The investigation wing of the quasi judicial body on Wednesday issued notices to five major tyre makers and is preparing to issue notices to steel companies as early as next week.

The regulator will seek details of the recent price rise, capacity utilisation, raw material cost, profit margins and a host of other information to establish a meeting of minds and price parallelism among companies. If established, the commission���s report would further strengthen finance minister P Chidambaram���s hands in taking tough measures he has promised in sectors where monopolistic and oligopolistic tendencies are visible.

The commission���s chief of investigation on Wednesday issued notices against MRF, Apollo Tyres, JK Tyres, Ceat Tyres and Goodyear that control over 80% of the market. MRF controls 24% of the market while Apollo Tyres has 22%, JK Tyres 17%, Ceat 14% and Goodyear 6%. Associations representing transporters have also alleged that cartelisation is rampant among tyre makers.

The director-general of investigation & registration (DGIR) has three months to complete the probe. Apart from government���s action based on the regulator���s findings, the commission could direct companies not to collude. In case of non-compliance, contempt of court proceedings would follow.

In sectors where the market is shared by a small number of players, strategic planning by a company always takes into account the likely response of the others. Besides, concentration of market share makes it easier to predict market behaviour. This makes the sector prone to collusion and cartelisation.

The steel sector has come under scanner in the wake of its implications on inflation. Steel prices have skyrocketed during 2007-08, rising over 60% during the financial year. In fact, prices have moved up 25-30% during January-March and continue to rise with hikes in April taking benchmark hot-rolled coil prices close to Rs 40,000 a tonne.

While companies say the price hike is largely induced by a sharp rise in input costs, MRTPC is likely to examine whether the quantum of increase in steel prices is in proportion to increase in input costs. In fact, the commission would also examine the entire issue of cartelisation since of the finished steel production of 60 million tonnes, seven integrated steel players including SAIL, Tata Steel, RINL, Essar, JSW, Ispat and Jindal Steel & Power command 70% market share.

PSUs such as SAIL and RINL may be kept out of the investigation as their decisions are governed by government policies, a source said. What is surprising that even as input cost is robbing steel companies of its margins, almost all major players have increased their profits during the period of steel price rise. In fact, the nine-month profits of some steel companies have surpassed the profitability figures of fiscal 2006-07.

What has irked the government most is that despite assurances from companies for holding the price line, steel makers have gone ahead and increased prices consistently. The latest move is the imposition of Rs 5,000-per-tonne raw material surcharge by companies like JSW, Ispat and Essar. In the week ended April 5, 2008, the index for iron and steel products, which has a weight of 3.64% in the closely-watched WPI, moved up 1.2%, official data revealed on Thursday. Prices of steel alloys moved up more than 12% during the week.