If we are asked to choose between poor demand and Chinese threat of imports as the single factor explaining the declining EBITDA of the steel industry, a large number would surely opt for the latter. China has exported around 90 MT of steel in the first 10 months of 2015, a 6% rise over previous year. Pegging the export volume from China at 90 MT (average of last 3 years), it indicates that this volume (11% of global 3-yearly average apparent steel consumption) is the root cause of the current difficulties facing the industry.

Added to this, there has been an increasing export of steel containing goods (indirect export of steel) from China that caused irreparable losses in terms of output, income and jobs in specific manufacturing segments in various countries. In India, some of these labour-intensive segments and various equipment manufacturers, including electrical and machinery, have either closed shops or have virtually turned into assemblers of imported parts and equipment from China at a fee. Some sort of pre-matured deindustrialisation has engulfed a subset of our manufacturing base and it is expanding at a fast rate.

It is a fact that pattern of manufacturing in a country is mostly dynamic and must keep pace with the changing phase of customer demand, quality upgradation and innovativeness. The imported finished products are matching all these parameters. Why our domestic players are not able to make this happen in their manufacturing facilities and save the country from the ignominy of sheltering inefficiencies. Import dependence makes operational activities much simpler and it would be a stiff challenge for Make in India initiatives to make a significant impact to alter this

perspective.

During April-October 2015, China has exported 2.05 MT of steel to India as per JPC reports. This is 28% share of the total imports and indicates a growth of 20% over the previous year. Keeping Chinese imports pegged at 1.5 MT (average of 10 months in last 3 years) the apparent consumption at 46.3 MT could have been pushed up by another 0.07 MT by making this additional tonnage available for the domestic players at a monthly average of 8,500 tonne. The quantum is not significant enough to make any impact on the EBITDA as prices continue to be depressed due to lack of demand. The primary issue with current steel imports from China is with regard to the price effect ($260/t fob for HRC) and HR being the mother product, the price depression extends to a host of other downstream products like CR, HDG, Pipe and ESS.

Thus rising threat of import of steel and steel containing goods from China is a critical factor that has only aggravated the subdued demand scenario for not only steel but for a host of other manufactured items as well.

There is a growing concern that very shortly as per the Protocol of Accession to WTO, China would be treated as a market economy in anti-dumping cases starting from December 2016. If Chinese prices and costs are treated as market determined rates for dumping calculations, it would result in lower or no dumping margins on imports of Chinese steel. The standard rules for determining dumping margins under anti-dumping would therefore be ineffective as the current practice of determining Chinese prices and costs based on third country inputs would no longer be valid.

It is rightly argued that intense intervention by the Chinese government in providing land, infrastructure, power and bank credit to steel units specifically the state-owned ones have made possible for them to get adequate quantity and low prices of raw materials which translate into the ability of sustaining low prices of finished products as well as exports apart from enjoying variety of subsidies and tax benefits.

The role of China in market distorting practices even to negate the WTO compliant trade procedures is indeed a major threat but would lose much of its sheen if only the global demand improves.

The author is DG, Institute of Steel Growth and

Development. Views expressed are personal.