The global steel market is passing through a critical phase with uncertain elements cropping up infrequently to disrupt the slow and steady journey of revival. While the US-China trade war is continuing unabated, the recent negotiations failed to provide a possible solution.
Apart from 25% duty imposition on all steel imports, the US currently has anti-dumping duty (ADD) on HRC, CRC, cut to length plate, corrosion-resistant steel and rebar against China, India, Brazil, Japan, Turkey, Ukraine, Russia, the Netherlands and the UK. It had imposed countervailing duties (CVD) on CRC, rebar and stainless steel sheet against Vietnam, China and Turkey. The US had exempted Argentina, Australia and Brazil with quota (based on the last three yearly averages). Under KORUS, South Korea has been allowed to export steel to USA to the extent of 70% of the stock exported by it during 2015-17.
The North American Free Trade Agreement (NAFTA) agreement of free trade is replaced with the US–Mexico–Canada Agreement (USMCA), though the extent of free trade permitted under the scheme among the partners is not known. This along with the warning of the US President on building a steel fencing along the US-Mexico border has generated a lot of heat not only in the Senate but is sure to influence the clauses in USMCA deal by flaring up sentiments in Mexico and Canada (for different reasons), too. The EU has imposed ADD and CVD against China, Russia, Ukraine, Brazil and Iran in the case of HRC, HR plate, CRC, rebar and seamless tubes.
After the imposition of duties on steel by the US under Section 232, there was a distinct rise in diverted import arrivals to EU as a result. It had prompted EU to finalise the definitive quota-based safeguard trade on 26 steel products with its trading partners based on last three years’ averages in July 2018 with a provision of the quota size rising by 5% in February 2019 and by another 5% in July. Any import beyond this quota would attract 25% duty.
This way, the global steel market is getting squeezed as the US and the EU comprise around 52-56% of the trade as a whole. Under this scenario, the shake-up is really hitting the traditional steel exporters such as Japan, Turkey, Ukraine, Russia, Iran, Vietnam and also China — being the largest of these. The restricted access to the US and the EU has compelled all these countries to target other destinations which are showing good demand growth. India with domestic demand growing at 7.5-8% would automatically be in the receiving end of increased flow of steel from these countries. In FY18, India became a net exporter of steel.
In April-January 2019, total steel imports at 7.4 MT exceeded last year’s level by 2.1% while total steel exports at 7.1 MT were 28.3% lower compared to last year. During this period, Japan and South Korea (beneficiaries of Regional Comprehensive Economic Partnership) have exported 3.61 MT of steel to India, with Chinese exports of 1.4 MT. These three sources have exported 4.92 MT of steel which comprises 67% of the total imports by India during this period.
Japan and South Korea have exported to India primarily in HRC, CRC, coated sheets, electrical sheets, plates, rails, and bars and rods while China is a dominant supplier of bars and rods (TMT/wire rods), plates, CRC, coated sheets, electrical sheets and pipes.
It has to be kept in view that imports from Japan and Korea are duty-free (under RCEP). India has imported defective/seconds grade steel in the form of GP/coated sheet, tin plates/tin free steel and pipes, totalling `994 crore worth of defective steel.
Apart from a minimum tonnage of non-prime grade TP required for non-critical applications, there is no rationale that can justify such a large quantity of waste TP imports. Further, there are abundant capacities existing for galvanised and coated products as well as for pipes in the country which under no circumstances can justify imports of such large tonnages in defective grades. These imports not only spoil India’s image in the global steel fraternity but also nullifies the government’s thrust on the mandatory use of BIS standards for majority of steel products. Such cheap imports drag down the price and when imported through the trade channel lose its original quality specifications. Due to this, unsuspecting consumer segments use defective grades as prime variety and are attracted to purchase these at a significantly lower price. Since defective steel trading do not fall under normal World Trade Organization-defined guidelines, there is absolutely no logic why the tariff rate on defective steel cannot be fixed up to the bound rate fixed for India which is 40%.
India can also take a clue from EU strategy of imposing definitive safeguard duty from the anticipated rise in steel imports during the coming months. This can be imposed for the next three years. As steel prices have recently started to rise on the back of enhanced prices of iron ore and coking coal, and manufacturers have experienced rising bottom line in the past few months, it is felt the current import restrictive measures must be linked more with volume and less with prices.
(Views expressed are personal)