Automaker Mahindra & Mahindra is waiting anxiously for March 31. That's when its long-term contracts to buy steel come to an end. The company fears that with steel prices soaring, that's when its troubles will start.
M&M isn't the only company that is, metaphorically, keeping its fingers crossed as it looks into the not-too-distant future.
From air-conditioner manufacturers like Hitachi to white goods makers like Electrolux, everyone is watching nervously as the price of steel zooms to new highs.
Also in the firing line are construction companies that use large quantities of steel to erect high-rise buildings and houses and bicycle companies which depend almost entirely on steel prices to stay on the road.
One man who is particularly worried about the future is Hyundai Motors India president B V R Subbu, who doesn't believe in mincing words.
Confronted with spiralling steel prices in the last six months, Subbu warns that the profits of all car companies will be seriously hit.
"I see a 25 per cent fall in profitability of passenger car companies as we have no option but to absorb the entire cost of the steel price increase," he says.
As steel prices soar, they have triggered a fierce lobbying battle that is making itself heard at the highest echelons of government.
On one side are the giant steel producers who, after years of losses and tight margins, are contentedly raking in the moolah for a change.
On the other, are an equally powerful alliance of everyone from auto giants like Maruti and Hyundai to construction companies like Ansal Properties and Industries.
This week the steel lobby demonstrated its clout when it persuaded the Government to discuss a long-standing demand for controlling iron ore exports.
The steel manufacturers have been pushing the Government to negotiate with the Chinese and demand coking coal in exchange for iron ore. Controls on iron ore exports would benefit both the steel manufacturers and steel users.
Certainly, a slowdown on iron ore exports would come as a relief for many sections of Indian industry.
Many companies already say they are getting clobbered by the price rises that have taken place during the last year. Sushil Ansal of Ansal Properties says that costs have escalated by 8 per cent.
Says Ansal: "As we do not have any escalation clauses with buyers there is no option but to absorb the cost. So margins are getting squeezed."
What are the facts of the case? Are users, who've been spoilt by years of cheap steel, exaggerating the impact that rising prices could have in coming months? Or, have the steel manufacturers formed a cartel aimed at squeezing ever-higher prices, as their opponents claim?
Certainly, prices have spiralled in the last few months as global shortages have built up and China has kept buying extraordinary amounts of steel.
For instance, prices of hot rolled coils -- the key ingredient for donwstream steel products -- have shot up from Rs 18,500 per tonne in August 2003 to Rs 23,500 this February. That's a rise of over 27 per cent.
Adding to the woes of users, prices have altered around six times in the last 12 months. Hero Cycles, the country's largest cycle manufacturer, has been one company that has been particularly badly hit because steel accounts for 70 per cent of its raw material costs.
Says an agitated S K Rai of the Ludhiana-based company: "I don't know how we can say India is shining when the production of cycles which go to rural India have actually fallen because of heavy increases in steel prices."
Rai says his company has been forced to hike prices by between Rs 40 and Rs 50 in recent months. But cycle buyers are a parsimonious lot and Rai says the company can't pass on the entire cost increase of over Rs 100 on each cycle.
It's much the same story at a host of companies across the spectrum. The white goods manufacturers are desperate to hold prices for as long as possible but they are having a tough time.
Says Rajeev Karwal, CEO, Electrolux which uses steel for making refrigerators and a range of other products: "The increase in cost because of steel ranges from around 4 per cent to 5 per cent. That could translate into Rs 300 to Rs 400 on a refrigerator. We, of course, have to absorb the entire cost."
Not everyone can manage that feat. Hitachi, which makes air-conditioners, says it will have no option but to hike prices in the near future.
Says Amit Doshi who heads marketing in Hitachi: "We will have to increase prices by 5 per cent after reducing them for the last two-and-a-half years. We cannot go on absorbing the steel hike costs."
But the most severe impact has been on vehicle manufacturers. Says a worried J M Mapgaonkar, vice president, vendor management, Mahindra & Mahindra "Steel prices are literally going through the roof. Sooner or later we will have to pass on the burden of these prices to the end-user."
Mapgaonkar says that M&M has been trying to minimise the damage caused by the steel price hikes. But the company needs to cut costs by Rs 6,000 and that's tough when they are already cut to the bone.
The same fears are reflected in Hyundai which says that the price of each car has climbed by between Rs 4,000 and Rs 7,000 on the Santro and as much as Rs 6,000 to Rs 11,000 on each Accent.
Hyundai's long-term contracts too, will end by April and the company expects the new negotiated prices to be higher.
Says Subbu: "As we can't pass on the cost increase the only alternative is to withdraw the discounts we are offering."
Multinational truck manufacturer Tatra has been hit in another way. Tatra still imports most of its steel but its local vendors are clamouring for price hikes of upto 10 per cent.
Also, the company is putting up a new factory in Noida and project costs are likely to rise by 2 per cent because of steel costs.
"As far as our vehicles go, we have no option but to absorb the cost for the time being," says a spokesperson.
The integrated steel manufacturers -- SAIL, Tisco, Essar, Jindal and Ispat -- are also coming under fire from an unexpected quarter.
They are being flayed by the secondary steel mills which use HRC (produced by the big mills) as a key raw material to process steel.
Argues S C Mathur, executive director, the Cold Rolled Steel Manufacturers Association: "The integrated mills are virtually trying to squeeze us out of business by forming a cartel and fixing prices."
But what exactly is the problem? Points out Rakesh Valecha, a steel industry analyst at Fitch Ratings: " I think two things are happening -- demand is good and prices are rising. On the other hand steel makers are also taking full advantage of the demand surge."
The end-users claim that the big steel companies are using a variety of tactics to ensure that prices are pushed up to stratospheric levels.
They say, for instance, that the big manufacturers are diverting steel to the export market and, thus, creating artificial shortages at home. Worse, according to these allegations, the steel manufacturers are selling steel at cheaper prices in the export market.
CORSMA points out that between April and December production of HR coils was 1 million tonnes short of the target fixed by the Government. Nevertheless, during this period, the steel manufacturers have managed to meet all their export targets.
The steel users are also lobbying heavily for a reduction in import duties, which have been pegged at 20 per cent. They say import duties on steel should now come down to about 10 per cent.
Asks a senior member of the Society of Automobile Manufacturers: "You are making money and are able to peg your prices to international levels, Also, you are increasing prices at will, so what is the logic of having such a large protection?"
Argues Karwal: "A duty reduction would help in keeping domestic prices in check. There won't be a sudden surge in imports because delivery of such products takes two to three months and you have to order in advance."
But integrated steel makers say that the noise being created by the users has no justification. They are particularly bitter about the ruckus being made by the car industry.
For a start, they point out that the steel industry has been under desperate pressure in recent years and has, at times, been selling steel at a loss.
Argues Jitendra Mehra, director, Essar group: "They are complaining that steel prices are increasing their costs of production. But they surely do not want us to sell steel to them at a loss as we have done till a year ago so that they can make large profits. That is unfair."
The steelmakers also argue that the impact on their margins because of the steep price hike is being exaggerated.
They point to a CRISIL study, which says that the increase in steel prices has been more than neutralised by excise duty reductions given by the Government. The excise duty on cars has dropped from 32 per cent to 24 per cent.
CRISIL contends that while steel prices have added an average extra burden of Rs 5,000 per car the excise benefits work out to over Rs 20,000.
And that does not take into account the fact that duties on steel have already come down recently from 25 per cent to 20 per cent.
The integrated steelmakers are opposed to duty reductions for obvious reasons. Says a senior executive of a large steel company: "We have no problems if you reduce import duty to 10 per cent on steel. But let duties on passnger cars, which are at 108 per cent be also reduced. You can't attack us and protect your industry."
The big steel makers justify the protection because their costs are higher than international steel -- because other costs are high.
For instance, compared to interest costs of 3 per cent to 4 per cent abroad, steel companies have to fork out 14 per cent.
But are they overcharging? The answer is clearly no. The reason: while prices have gone up so have costs.
For instance, coking coke has gone up five-fold in 18 months due to soaring demand in China. Worse, iron ore prices have virtually doubled.
Says a senior executive of a steel company: "During financial restructuring of the steel companies, the financial institutions had estimated that at Rs 15,000 a tonne we would break even. But in the last few months our prices have gone up by over Rs 6,500 a tonne -- so where are the super-margins that users claim we are making?"
They also rubbish the argument that steel companies are selling their product cheaper in the international market than to customers in India.
One example: export price of HRC at $500 (Rs 22,600) is virtually similar to that offered in the domestic market.
But the big questions is whether there is a way around this impasse. Fitch predicts prices will come down to more stable levels in the next few months. If that happens most users might not stop complaining.
In order to ensure that steel is available to domestic users rather than diverted to exports the Government a few week ago reduced the entitlement on steel makers of free imports goods on exports substantially.Both sides have strong points in their defence. But with margins under stress the only hope seems to be if the overall global prices of steel stabilise.