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  1. Steel needs to be kept outside purview of FTAs, RCEPs

Steel needs to be kept outside purview of FTAs, RCEPs

A common topic being discussed and deliberated in most of the seminars or workshops relates to the feasibility of the major goal set up in NSP 2017 for crude steel capacity to reach 300 MT by 2030-31.

By: | New Delhi | Published: August 1, 2018 12:08 AM
Steel needs to be kept outside purview of FTAs, RCEPs

A common topic being discussed and deliberated in most of the seminars or workshops relates to the feasibility of the major goal set up in NSP 2017 for crude steel capacity to reach 300 MT by 2030-31. That steel demand is to grow from the current level of 90.6 MT to around 230MT at an annual average rate of 7.4% is the basis of this assumption.

The supply side of this critical goal till the beginning of FY 17 was confined to primarily the brownfield expansion by major mills like SAIL, Tata, JSW and JSPL at various locations in the states of West Bengal, Jharkhand, Maharashtra, Karnataka, Chattisgarh and Odisha. The breaking news of Essar, Bhushan Steel and Power, Monnet Ispat, Electrosteel, Adhunik steel, Visa Steel being referred to NCLT as per the provisions of Liquidation and Bankruptcy Act due to their inability to pay back the massive amounts of loans borrowed by them from banks and other financial institutions that led to NPAs exceeding more than 10% of the total deposits, initially came as a dampener to the industry during FY17 and H1 of FY18.

The subdued global market and rising raw material prices made the brownfield expansion staggered for few months more with greenfield expansion still considered not to be happening in the specific context of Indian steel market.

Thanks to the revival of steel demand that were observed in the global markets around H2 of FY18, the steel prices of finished products commenced their north- bound journey with fluctuations and subsequently a downward trend in the prices of iron ore and coking coal. Against this backdrop it is again engaging the attention of all the stakeholders to revisit the issue.

Domestic steel demand in India has reached a critical phase. The pre-election year is expectedly associated with significant push for the development projects, be it in housing, new industrial and non-residential complexes, building up of urban infrastructure, implementation of mega projects in railways like high speed rails, metro rails, dedicated freight corridors, new lines and gauge conversion, industrial corridors, Sagarmala (in terms of coastal waterways) and establishment of new major and minor ports, Bharatmala projects (in terms of enhancing the road network across the country) and connectivity between NE states with the rest of the country and also with Bangladesh, Myanmar, Nepal and Sri Lanka. Also, opening up of the defence sector is leading to immense benefits to the steel industry and specifically the SME sector.

The notable contribution of these mega projects was to sensitise the different state governments to become a part of the projects but also supplement the the Centre’s efforts. The massive investment and actual implementation by different states reached a new high and steel producers, spread throughout the various locations in the country, could derive benefits by improving their bottom lines.

The second aspect of rejuvenation of steel demand was the emergence of the manufacturing sector in promoting steel use. Led by automobile, the capital goods (including the heavy machinery and other light engineering), the infrastructure & construction and consumer durables sectors are beginning to shake off the poor/slow growth syndrome and also joining the growth armada. Thus, demand for steel got a big boost from infrastructure sector as it has been receiving in the past.The fresh impetus came from engineering and other processing industries — a phenomenon that was a big relief for the steel industry.

As the international prices were ruling at a high, the support extended by the government in terms of MIP, safeguard and AD are much below the global prices and hence need to be revisited urgently. The latest announcement by US under section 232 of US trade expansion Act 1962 imposing a 25% duty uniformly on steel imports and 10% on aluminium imports put a temporary brake to this success story since March ’18.

The institution of WTO was shaken as it violated the standard set by WTO, in which US was the founding driver, on free and fair trade. US came out of Trans Pacific Treaty and it posed a strong challenge to the efficacy of FTAs and RCEPs (Regional Comprehensive Economic Partnership). It may be mentioned that India was at the receiving end of RCEP agreement with South Korea and Japan, which are currently permitted to export steel at zero duty to India. India has already become a net importer of steel in Q1 of the current fiscal with exports down by around 15%. There is also a conclusive proof that a major portion of the diverted exports to USA from South Korea, Japan and China are now coming to India and threatens to affect the smooth running of the steel mills in the domestic market. This implies that the incremental growth in domestic demand would be met by three global players who find India’s growing appetite for steel can be fully met by them taking recourse to bilateral treaties.

This is a strange situation that has to be addressed urgently. Steel has to be kept outside the purviews of FTAs and RCEPs. Otherwise, the simple equation of demand growth justifying capacity growth through brownfield or greenfield expansion would be severely undermined.

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