Support measures like imposition of definitive anti-dumping duties on several flat-steel products and preferential procurement of local steel will improve the outlook for demand and profitability for domestic producers, according to Fitch Ratings. However, the next wave of aggressive capacity expansion presents a risk to credit profiles which are yet to recover fully from debt-funded capex over the last few years, the ratings agency said. The government has imposed definitive anti-dumping duties on hot-rolled (HR) and cold-rolled (CR) flat-steel products (excluding certain value-added steels such as stainless steel) from several countries including China, Japan and South Korea, through its orders dated May 11 and 12, 2017.
“The duties will result in a minimum cost (including the anti-dumping duty) of USD 489/tonne for HR coils, USD 561/tonne for HR plates and USD 576/tonne for CR coils imported from these countries,” it said. Anti-dumping duties will not be imposed if the landed value of imported products is higher. The duties are in place until August 2021, and provide long-term protection for the Indian steel mills. Anti-dumping duties reduce the risks of fall in selling prices and brighten the outlook for profitability amid prevailing global overcapacity, Fitch Ratings said. “Flat products have constituted the bulk of Indian steel imports over the last few years, and the HR and CR products on which anti-dumping duties have been imposed formed over 55 per cent of India’s finished steel imports in the 21-month period from April 2015 until December 2016.
“Tata Steel and JSW Steel are well placed to benefit from anti-dumping duties since around 75 per cent of their capacity is for production of flat products, dominated by those included in the latest government notification,” it said. India has also laid out a policy of providing preference to locally processed steel products in government procurement. The policy was approved by the government on May 3, 2017, in conjunction with the National Steel Policy which aims at increasing production to 300 million tonnes by 2030-31. Around 65 per cent of steel in India is consumed by the infrastructure, construction and rail transport sectors which are being driven by public-sector investment.
Preferential procurement, based on a minimum domestic value addition requirement of 15 per cent, improves the demand outlook for manufacturers over the longer term. However, near-term issues remain, it said.
Finished steel demand growth in India was relatively weak at 3 per cent in 2016-17, Fitch said citing an official data.
It further said faster demand growth will depend on acceleration in the pace of public-sector project execution and a recovery in private-sector demand. A key risk for the credit profiles of steel producers is the next wave of aggressive capacity addition. Risks to profitability are easing, but steel companies’ balance sheets remain relatively weak and major investments in capacity additions could result in high leverage metrics over the next two to three years, it added.