Surging steel imports have cast a troubling shadow over the prospects of the domestic industry when they have big-ticket expansion plans to cater to the government’s $1.4 trillion infrastructure-led push for growth, which is highly steel-intensive in nature. This has depressed steel prices, making it difficult to sustain the industry’s plans to add capacities. In this milieu, inventory levels of steel firms have risen from the normal 15-16 days to 30 days.
Although India is the world’s second-largest crude steel producer, it has become a net importer of finished steel since last fiscal, marking a shift in status as a net exporter since FY20. The domestic steel industry is currently lobbying for protection against rising imports from China directly or through countries like Vietnam on the lines of anti-dumping and safeguard duties imposed by the US, European Union, Canada and other countries. The ministry of steel has sought a 25% safeguard duty for two years to curb cheap Chinese imports that account for 30% of India’s steel imports till October this fiscal and are up by 35.4% year-on-year.
But how efficacious is a safeguard duty? While targeting China is the objective, the problem is that shipments are also rising from Japan and South Korea. These are countries with which India has inked comprehensive economic partnership agreements. In fact, around 62% steel imports at nil duties are currently landing from countries with which India has signed free trade agreements. A safeguard duty will not have any impact on these shipments, a point that has been admitted by steel secretary Sandeep Poundrik. The process to impose curbs also takes time—at least four to six months—for paperwork completion by the steel industry and a subsequent official investigation on whether there is an adverse impact of imports. However, a safeguard duty does not serve the interests of engineering industries as it will raise prices—steel constitutes 60% of the production cost for most products—and makes their exports uncompetitive in global markets. They are also worried over restrictions on steel shipments in ports and have urged the government to expedite the issuance of no objection certificates to clear them from customs.
For such reasons, a safeguard is perhaps a blunt instrument to address the current travails of the steel industry, although they are, no doubt, hurting from the deluge of imports and lower prices. Besides the big players, the one most affected are the small and medium-sized steel mills that account for 41% of total output and employ more than 1.5 million workers. Their levels of capacity utilisation have also dropped by a third over the last six months. A safeguard duty will not be needed if domestic steel prices recover from lows of $499 per tonne in end-October.
“If steel prices stay at $450-500 per tonne levels, it will be difficult for any steel company to support significant expansion”, stated TV Narendran, MD and CEO of Tata Steel, in an earnings call in early November. He added that a good place for prices is between $550-650 per tonne, but this would happen if Chinese imports halve from current levels. Instead of waiting for the dragon to tackle its surplus steel problem, a more efficacious course is to review the foreign trade agreements the country has signed to minimise steel imports at nil duties.