Import-led growth in steel consumption needs review

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Published: December 23, 2014 12:14:43 AM

As current global prices are much lower than our domestic prices, exports are no longer remunerative. In such a scenario, high imports are causing real pain to domestic producers

The latest data indicates that finished steel consumption in the country has gone up by 1.3% in the first 8 months of the current fiscal. The consumption grew by 0.4-0.5% till last month, when it went up by as high as 8% over the corresponding month of the previous year.

Finished steel availability in November from SAIL plants were nearly at the same level as of last year with significant fall in availability from RINL. Tata, Essar and JSW enhanced their production. Growth is also observed in SS production from JSL.

But the real impetus to growth in steel consumption came from surge in imports of finished steel (non-alloy, alloy and SS) exceeding 136% over November of last year. This phenomenon conceals the fact that the growth in steel consumption in the country is not due to increased offtake from the domestic end users, but by larger import flows.

The domestic buyers may have opted for imported sources, either due to non-availability of specific sizes and grades from indigenous sources or cheaper landed cost. Pending such clarifications, it is well established that higher volume sales by the domestic producers in the internal market would have supported a higher level of production (higher realisation as compared to exports) by substituting imports.

Talking of imports, it is seen that wire rods and TMT bars, the two products in which abundant indigenous capacities have been set up, are flowing to India. In the latter category, around 70% of imports originate from China which is coating the product with .0015% of Boron in order to avail substantial export tax benefits in its own country and thereby making the export price very competitive.

As mechanical properties of Boron-coated TMT are not making the product eminently suitable for reinforcement, the surge in import volume can only be prevented through safeguard measures. The jump in imports of alloy steel bars may also be included in any such investigation. The significant rise in imports of HR and CR is likely to take import volumes to 1.5 million tonne each by the end of this year. Here also apart from 0.5-0.7 million tonne of CR sheet/coils that require special treatment, there is no dearth of these sizes and grades in the domestic market.
Progressively downward trend in custom duties on these imports from Japan and South Korea under CEPA has enabled them to account for around 61% of imports in these two categories during April-November ’14. The balance is getting imported mostly from China and Ukraine and both these countries are very much affected by drying up of domestic demand and are compelled to export at a low price to India just to make their own plants running.

The surge in imports of electrical sheets, specifically CRGO, is necessary to fulfill the rising requirements for transformers from the power equipment manufacturers. The lower grades of CRNO continue to get imported from China and Russia. Last month steel exports from India went down by more than 21% compared to last year. As current global prices are much lower than our domestic prices, exports are no longer remunerative. In such a scenario, high imports are causing real pain to domestic producers.

This import-led growth in steel consumption needs a thorough review and appropriate strategies to be adopted to reverse the trend. The industry must take it up strongly with the concerned departments of the government before it nullifies all efforts of capacity augmentation by the domestic players.

The author is DG, Institute of Steel Growth and Development. The views expressed are personal

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