| Date: |
10-02-2016 |
| Subject: |
MIP good for steel sector, but more needed from Union Budget 2016-17 |
The government has kept its promise to stand by the steel industry, facing the most challenging phase ever. India is the only major emerging economy to exhibit a positive growth in steel consumption despite a fluctuating fortune in the manufacturing sector and a shrinking investment scenario in infrastructure and construction.
The industry players are under extreme pressure of dwindling profitability and are incurring huge losses due to declining margins and subdued demand. Export realisation is equally low, an offshoot of surplus capacities and low international prices as major exporters like China, CIS njations, Japan, South Korea, Brazil and Turkey are selling steel even below their marginal cost.
Indian banks are heavily burdened with massive debts on account of the stalled projects in the steel industry (more than 30% of NPAs) that are wary to add capacity unless the demand scenario improves.
In the past two-and-a-half years, low-priced imported steel from China, CIS countries, Brazil and steel from Japan and South Korea under concessional duty (currently 0.25% against 12.5%) of RCEP agreements) had flooded the Indian market, dislodging the domestic producers in HR, CR, plates, coated products, wire rods, TMT and semis, and enhanced the import share from 9% in 2010-11 to 13% in the current period. The government had earlier supported the industry by enhancing import duties from 5% and 7.5% in long and flats by 5% each, and also imposed Safeguard duties of 20% on import of HR coil of over 600 mm width in standard basic grades in September 2015 for a period of six months.
All these measures could not stem the flow of imports as international prices of all steel items nosedived during the period, based on steep decline in iron ore and coking coal prices and stagnant or declining demand growth in most steel-producing countries.
Many of the trading partners, particularly China and the CIS countries, made steel available at lower than the cost of production just to sustain the massive facilities created over the years, leading to a totally irrational level of predatory prices that damaged and distorted the markets in India and some other countries. Most disappointing for them was the fact that all the incremental growth in domestic demand (5-6%) was met by the low priced imports that reached a dumping level. The antidumping and countervailing investigations being time consuming, the government has given a temporary relief for 6 months to the steel industry by fixing the minimum import prices for 173 products under HS Code # 72.
Taking the case of HR coils, the minimum price of $445/t cfr amounts to R30,300 per tonne exceeding the current landed cost of HRC imported from China by R9400. The measure is, therefore, a right step to reverse the scenario of imports at unsustainable prices and would provide a relief to the domestic producers to achieve a higher realisation.
The measure excludes import of API grade HRC required for pipes used in critical pipeline projects of oil and gas sector and all imports under advance licences for exports. It has also made safeguard duties imposed on HRC redundant.
Based on imports during the first nine months of the current year, it is seen that India has imported nearly 2.6 million tonne (MT) of HRC (in all grades) which exceeds last year’s level by 96%.
Excluding the import of API of higher grades, the volume of HRC imports that could have been serviced in India by domestic players is around 2-2.2 MT during the period. This is the market for HR that has been lost due to the predatory pricing strategies adopted by China and other countries.
Similarly, for other categories like auto body advanced high strength steel, CRGO, CRNO (special grades), duplex and other special grades of SS, which are not domestically available as well as steel imported under the advance licensing route, the total additional market for approximately 6.0-6.5 MT out of total imports of 9.04 MT during April-December 2015 could have been made available for the domestic players to service and this has been lost to imports.
This, however, does not take away the need to push up the domestic demand for steel by another 10-15% through higher investment in infrastructure and growth in steel intensive segments under manufacturing.
Source : financialexpress.com
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