A sub-segment of the Indian manufacturing sector, that is eagerly anticipating some measure of comfort...
A sub-segment of the Indian manufacturing sector, that is eagerly anticipating some measure of comfort from the Budget, are metal companies, especially steelmakers.
Since the beginning of FY15, India has been flooded with low-cost steel from countries like China and Russia, and this has been a cause of grave concern for domestic steelmakers, exerting pressure on their pricing power, especially when global prices of the metal are already soft.
Increased steel imports have come at a time when the economic growth has been elusive, and sectors like auto, infrastructure and real estate (which consume copious volumes of steel otherwise) have been facing a slowdown.
Consequently, the steel sector has been vehemently demanding the imposition of a duty on steel imports, which would make it unviable for countries with excess steelmaking capacity like China to “dump” their production in the Indian market. The government has indicated that it is conscious of the pain.
According to an investor presentation on the webiste of Jindal Steel and Power, the import of total finished steel in the April-September period is estimated to have grown around 27% year-on-year to 3.85 million tonnes. After turning a net exporter of steel in FY14, India went back to being a net importer of the metal.
China, that has a share of around 49% of the global steel production, is faced with a slowdown and the pace of industrial activity in Beijing has been affected. This has forced Beijing to look at foreign markets to sell the produce.
Simultaneously, steel made in Russia has become attractive to Indian buyers due to the depreciation of the rouble.
Seshagiri Rao, joint MD and CFO of JSW Steel, said that an overwhelming 75% of the steel imports over the last six months have come from these two countries. If all categories of steel are taken together, imports have risen 58% in the first nine months of FY15, said Rao.
“Also, the steel that is coming into the country is of an inferior quality. If the government can enforce strict quality standards on the steel, a lot of imports will be automatically weeded out,” Rao said.
Koushik Chatterjee, group ED, finance and corporate at Tata Steel, said that unlike in the US, which acts swiftly in response to indications of potential injury to their domestic sector, it takes a long time to put tariff barriers in place in India.
Chatterjee said, “Protecting Indian manufacturers would be an important trade issue to handle, especially if we are focusing on Make in India.”