n the last few years, China has consistently added capacities in almost all steel categories in anticipation of demand growth.
In the last few years, China has consistently added capacities in almost all steel categories in anticipation of demand growth. With decline in domestic demand since 2012, Chinese firms were saddled with surplus capacities (total finished steel surplus: 130MT in 2013) in almost all categories, which prompted them to export increasing volumes to all major steel producing countries. India became an easy destination due to its large market size, preference for low-end products at cheap prices and logistic advantage for China.
While 27.3% of total carbon steel import has arrived from China in the first 7 months of the current fiscal (against 14% in 2013), China has emerged as the major supplier to India capturing more than 60% share of the total import of alloy/stainless steel category in the current period (against 38% in 2013). In both these categories, China remained a low-cost producer mostly supported by government policies, namely, nil import duty on raw materials ( scrap, ferro nickel, ferro molybdenum, and pure nickel), low capital cost (interest rate: 3.5-4.0%), power supply at huge subsidised rates.
Compared to this Indian steel producers pay at least 30% more for power, pay duty at the rate of 2.5 -5.0% on imported raw materials including coking coal with much higher cost of capital ( interest rate: 8.5-9.5%). Further, import duty on flat steel in India is 2.5% lower compared to the level in China. The indigenous steel industry has brought these anomalies in duty structure that has impacted adversely its competitiveness vis-à-vis China to the notice of the government who needs to address these issues urgently without waiting for annual budget announcements, three months later.
A few statistics are most relevant. In 2009, China had a deficit capacity (demand-supply gap) in stainless steel at around (-) 0.6 million tonne which turned into a surplus at 1.8 MT in 2013. In 2009-10, China exported less than 8% of the total import of flat SS steel to India which went up to 37% in 2013-14, registering an annual average growth of nearly 700% during the last five years.
The preferential duty rate being enjoyed by South Korea and Japan under CEPA had enabled these two countries to take away around 22% of the total import of flat SS steel in 2012-13. The domestic SS sector with around 3-3.5 million tonne of market size is projected to grow at an annual growth of 8.8% in the next 7 years to reach 5.7 MT by 2022 with major development in power, process industry, electro mechanical, engineering and ABC sectors. The capacity augmentation efforts by the domestic industry with own accumulated reserve and mostly by bank credit and market borrowing at a high interest cost would be jeopardized if the growing imports from China, Korea and Japan enjoying substantial help from their own governments and preferential import duties under FTAs are not dealt adequately with genuine concern for the health of the domestic industry.
And this is equally true for carbon, alloy and SS industry. Eliminating the import duty on raw materials by 2.5%, enhancing import duty on finished steel at least by 2.5% and a complete review of the economic impact of FTAs to reconsider preferential duty structure may be the immediate support the domestic steel industry is expecting eagerly from the government.
The “Make-in-India” slogan is most appropriate for Indian steel industry which needs a little more nurturing to utilise the capacity installed not only to cater to the rising domestic market but also to emerge as a major global player in the coming years.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal