NMDC cutting ore prices is critical
The wheel appears to have turned a full circle. In 1999, Essar Steel defaulted on its $250 million floating rate notes; today, with a debt of close to Rs 38,000 crore and profits nowhere in sight, the company is once again looking to banks to bail it out by refinancing its loans. It is not just Essar Steel, the entire industry is in trouble with a few companies having already got bankers to re-jig their debt. With global prices having coming off by close to 30% over the past six months, imports have soared—a 71% jump over FY14—and prices in the home market have fallen by 7-14%. What has made it worse is that demand in the home market grew at an anaemic 3% last year, the weakest in several years. Given the extra capacity coming up over the next few years, and the rapidly slowing Chinese economy, things could get even worse.
In such a situation, the government could give local steelmakers some succour by raising the import duty on finished steel. The problem, however, is that with over a third of imports coming from Japan and Korea with whom India has free trade agreements, the higher import duties will not apply to these countries—while current steel duties are 7.5%, for instance, duties for Japanese steel are 0.8%. As for an anti-dumping duty, the government would need to make out a convincing case under WTO rules; first, it would need to show dumping is taking place and then it will have to prove this is resulting in material injury to the industry both in terms of volumes and prices—in this case too, goods coming from FTAs will escape the duty hike.
While the import duty option can be looked at, a more immediate step lies in getting the public sector NMDC to drop prices of iron ore so that domestic steel makers can get some relief. While global iron ore prices have fallen by 60% in the last one year—21% in just the last one month—prices in the home market have come off by just 7-14%, causing a lot of distress to steel makers who do not have captive mines. Indeed, with 4 large miners looking to add over 200 million tonnes of capacity over the next 2-3 years, global ore prices are going to fall even more. While the slowing steel demand is a reality steel firms, and their lenders, will have to live with, it is unconscionable that NMDC has not lowered its price as yet.