>STEEL SECTOR (FIRST GLOBAL)

Is the imposition of safeguard duty on imported HRC required to protect
Indian steel majors?

The Story…

At a time when the US and European governments are trying hard to close their doors on foreign steel by imposing anti-dumping duties on steel products imported from India, there has been a sharp surge in steel imports into the country. According to data by the Directorate General of Commercial Intelligence & Statistics, India’s average monthly steel imports rose from 80,000 tonnes in September 2008 to 250,000 tonnes in February 2009, following an increase in purchase by galvanised steel players, engineering and construction companies. Presently, countries, such as China and Ukraine, continue to ‘dump’ steel into India.

In order to protect the interests of Indian steel majors, the Director General of Safeguards had recommended imposing a safeguard duty of 25% on HRC imported at a price of less than $600/tonne, which was, however, turned down by the government. Considering that all Indian steel majors operated at full capacity in the January- March 2009 quarter and recorded a significant growth in volumes for the period, the demand for steel in India appears quite strong. Moreover, steel currently trades at a premium in India in comparison to world steel prices. The question that now arises is whether there is actually a need for the imposition of safeguard duty on imported steel for Indian steel companies, particularly at a time when the infrastructure, construction and auto sector (all steel users) badly require cheaper steel for an early revival. Read on for the answer...

The case presented by Domestic Steel Players

M/s Ispat Industries Ltd. and Essar Steel Ltd. have filed an application for the imposition of
safeguard duty on imports of Hot Rolled Coils/Sheets/Strips. The application is supported by SAIL and JSW Steel Ltd. The applicant, along with the supporting companies, accounted for 79.50% of India’s total production in April 2008-February 2009.

As much as 7,00,000 tonnes of HR coils are estimated to land on Indian shores between May 2009 and July 2009 from Ukraine and Turkey. The imports have been contracted at a price of $400- 415/tonne at Indian shores, while Indian prices stand at $500-540/tonne. These low cost imports could put pressure on Indian steel prices, thereby impacting the profitability of steel majors.

The other side of The Coin

Since the last four months, all major primary steel producers in India have been operating at 100% capacity utilization and recorded a growth in sales volumes for the period. These companies managed to sell their total output in spite of comparatively higher imports (as against last year), as it is not possible for all players with a requirement for HR coils to import the same into the country and only a few big producers having huge requirements are capable of importing the product. Moreover, there also still exists a strong domestic demand for steel and according to latest projections by the World Steel Association, India might be the only country in the world to record a growth (2%) in steel demand in CY09. India has overtaken Russia and the US to become the world’s third largest steel producer, amidst the present scenario of slowing demand and drastic production cuts in both the countries.

Presently, in India, steel prices have stabilised (with an upward bias), which coupled with the significant decline in coking coal and iron ore prices, has provided relief to the major steel producers. We have made some rough calculations in order to arrive at the production cost of crude steel under the new raw material contract prices.

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