Defensive strategies in marketing operation have a legacy, which has remained unbeatable over the centuries. The surroundings necessitating such actions are also familiar and have not changed much. The predominant factor is the pricing of the product, followed by capacity vis-?-vis demand, investment scenario, budgetary deficit leading to curtailment of expenditure etc.
Currently, the global steel industry is exhibiting features of an industry taking recourse to precautionary measures to protect individual areas of operation. Is it hurting the spirit of globalisation?
During the last six months, the cfr prices of HR coils (cold rolling grade) at Indian ports have fallen from $635/tonne in Jan?12 to $ 610/tonne in early July?12, while fob prices of Rebars in the long category of Turkish origin has dropped from $665/tonne in Jan?12 to $620/tonne in July?12. What is comfortable for the steel producers is the fact that the downward trend has not escaped the major raw materials like iron ore and scrap.
The landed price at Chinese ports of 63.5% Fe iron ore has fallen from $145/tonne to $137/tonne in the same period, while melting scrap of HMS 1&2 variety (80:20 mix) fob export price East Coast USA changed from $430/tonne to $355/tonne during this period. Increase in coking coal prices at $225/tonne fob in July-September?12 by 7% compared to earlier quarter would neutralise the gain in cost of production to some extent.
The risk of having excess capacity in HR coils, plates, CR in Europe, USA, Japan as well as in China, partially in India and a few other Asian countries in the face of uncertain demand has brought out the protectionist measures by the domestic industry.
The growing importance of raw material security has prompted China to impose quota, export tax on a group of nine major raw materials. Indonesia is in the process of putting a ban on export of unprocessed raw materials without value addition and also tax on exports. Australia has recently imposed carbon tax @A$23/tonne and a 30% minerals resource rent tax on iron ore and coal miners whose profit exceeds $126 million. India has imposed 30% tax and additional railway freight on export of iron ore.
However, looking at the massive potential of steel industry in some of these countries and the necessity of having a sustainable source of supply of raw materials, the above restrictions on the continuous depletion of natural resources may find support from even the votaries of globalisation.
What is distressing is the rise in number of anti-dumping and safeguard duty petitions among the regular trading partners, USA, China, Australia, Europe, Vietnam, Indonesia and Turkey.
Prices of finished steel are going to observe a subdued trend in the coming months, unless the major consumption points exhibit a boost in economic growth. Would this scenario continue to strengthen the protectionist trend? USA closed its shore to Indian HR coils, plates and now fighting it out with China. Bilateral trade dialogues must precede pursuance of WTO rules and regulations.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal