At the core of the heightened demand for a higher tariff wall, in the form of safeguard duty, on steel imports is the relative uncompetitiveness of the domestic primary steel makers. The world steel supplies remain robust, making imported cost of the alloy cheaper, even as domestic producers complain of low profitability.
At the end of November, domestic HRC (hot rolled coil) prices were trading at a significant premium of $12-16/MT compared to the landed costs of imports from China and
Japan. According to analysts, import pressures are unlikely to alleviate in the coming months unless there is a meaningful recovery in international steel prices, which at this juncture looks improbable.
The government has a difficult decision to make. On the one hand, it can’t leave the primary steel players to face import competition, when all of them have lined up capacity addition plans. On the other, higher steel prices will exert inflationary pressures, causing price rises across the downstream steel units, and various user industries.
The current fiscal year may see a four-year low capacity utilisation level of 78% in domestic steel industry. This is even as large steel companies are already on a major capacity expansion drive, pinning hopes on the strong infrastructure investments in the Indian economy, and a buoyant construction sector. Medium-term forecasts of steel demand in India are quite bullish.
Going by the latest data from the steel ministry, India’s steel imports rose by over 41% to 4.7 million tonnes (MT) in the first six months of the current fiscal compared with 3.33 MT in the same period last fiscal. On the other hand, exports in the comparable period dropped 36% to 2.31 MT from 3.6 MT a year ago. After many years, India became a net importer of steel in FY24. The trend continued in the first six months and is expected to continue for the entire fiscal as well, making India a net importer for two consecutive years.
Apart from direct exports, China uses third-party routes through ASEAN nations to dump products in India. China, which produces more steel than the rest of the world combined, contributes around 30% of steel imports to India. A property crisis has battered the domestic demand, leading to a huge outflow of steel from the country.
According to the China Steel Association, Chinese steel exports topped 100 MT during the January-November period of the current year, up 22.6% compared to the same period in 2023 and 12% higher than the total of 90.26 MT in 2023.
India has free trade agreements with Japan and Korea, which entitle the two excess countries to dock products at nil duty. Japan and Korea account for 60% of India’s total imports.
Rating agency ICRA estimates that India’s finished steel imports, at around 11 MT, are expected to corner about 7-7.5% of the domestic market share in FY25, the highest level recorded in the last six years. Moreover, with export demand remaining lacklustre, FY25 net finished steel imports are poised to spike to levels last witnessed during the FY16 metals meltdown.
Steel is a globally traded product. In the steel trade, the external environment plays a crucial role in determining the health of the domestic industry. Given China’s sub-par economic growth outlook and other leading global steel-producing and consuming hubs, steel trade flows have been redirected to high-growth markets like India, which is expected to log double-digit consumption growth this fiscal as well.
Apart from the 7.5% basic customs duty (which does not apply to imports from FTA countries), most of the earlier tariff protection measures implemented during the 2015-2016 global metals meltdown, like anti-dumping duty, safeguard duty, and minimum import price, have expired, giving overseas suppliers easier access to the Indian market.
In 2015-16, out of India’s total 81.53 MT finished steel consumption, total steel imports were 11.57 MT, or around 14.4%. As of September in the current fiscal year, this comes at 6.45%. For the entire FY25, imports are expected to corner about 7.0-7.5% of the domestic market share, the highest level recorded in the last six years.
Capacity expansion is in full swing in the domestic steel industry. In the next seven years till FY2031, domestic steel mills are targeting to increase the domestic installed capacity by 50% by adding 90-95 mtpa of new capacities, which might entail an investment of US$40-45 billion. With the industry’s earnings moderating from the higher levels of FY2022, and capex plans afoot, the industry’s debt stock has been steadily rising, and credit indicators gradually weakening since FY2023.
At end-September 2024, the industry’s domestic bank debt per tonne of installed capacity inched higher by ~17% to reach US$192/MT, compared to US$164/MT in end-March 2022.
The domestic industry wants protection against cheap imports from China directly or through countries like Vietnam, similar to the anti-dumping and safeguard duties imposed by the USA, European Union, Canada, and other countries. They want the government to be “proactive”, rather than reactive to avoid a situation like 2015-16, when an unprecedented inflow of imports at rapacious prices forced the government to impose a minimum support price, among other trade barriers.
The steel ministry has requested its finance counterpart impose a hefty 25% safeguard duty on specific grades. Globally, tightening imports to protect home turf has become the norm. Battered by the Chinese onslaught, the US and Canada have levied a 25% safeguard duty to protect their steel industries. Similarly, the EU has levied a 25% duty beyond the quantitative quota. Recently, many countries, such as Turkey, Indonesia, Malaysia, Vietnam, Japan, etc., have taken swift trade action to protect their markets. India is vulnerable to global trade diversion, with no trade protection measures in place.
The 25% safeguard duty imposition, at the current price of 48,000/tonne for HRC, will render imports unviable. The user industries are apprehensive that domestic integrated players will get a free hand to jack up prices, which might jeopardize their interests in such a scenario. “This is why the government has to do a very tightrope walk,” said ICRA’s Vice President and Sector Head, Corporate Sector Ratings, Ritabrata Ghosh.
