Cheap imports may hit India's steel market

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29 Nov 2008

China’s decision to cancel export duty on some 102 steel products could see it flood Indian markets with cheap priced steel items, the Indian steel industry feels. The industry is already reeling from falling demand, crashing prices and high production costs. China, the world’s largest steel producer, announced two weeks ago that it would remove the 5 percent levy on steel exports from December 1, to boost its steel industry, which has been severely hit by the global slowdown. According to industry sources in India, exporters in China have started shipping steel to India at “ridiculously low prices,” in a bid to clear stock. Due to the removal of the export duty, Chinese steel prices, currently, the cheapest in the world will encourage already sliding local demand to shift to Chinese imports, they said.
“The main worry is that with the global steel prices hitting rock bottom, imports have surged this year over the last few months,” said N.C. Mathur, director, Jindal Steel Ltd. “Initially steel was coming in from Europe but now the Euro has weakened considerably (making that currency expensive for Indian imports) whereas Chinese steel is getting cheaper day by day and that’s a threat we perceive.”
Mathur added, “We have recently seen new invoices that reflect China exporting steel to India at ridiculously low prices, which is even lower than their cost of production.”
Indeed, India’s steel industry is witnessing trying times lately with sources saying that not only has demand fallen sharply, but the industry is also reeling under cost pressures.
“The current global economic slowdown has led to a decline in the demand for steel and thereby the prices, whereas, the prices of raw materials for steel industry have remained firm over the period, affecting the viability of the sector,” said Amit Mitra, secretary general of the industry lobby The Federation of Indian Chamber of Commerce and Industry. “Already, the future expansion plans by the major steel producers of the country have been put on hold which would have implications for the economy and the employment,” he said.
Leading steel companies like Steel Authority of India and JSW Steel have reported 25 to 30 percent dip in consumption demand and have, consequently, resorted to production cuts.
However, the local steel industry faces a much harder blow from imports. According to the steel ministry, India’s steel imports have shot up 50 percent to about 3 million tons from April to September this year, compared to the same period last year, out of which at least a million ton came from China. “The fear is that with China taking measures to boost exports and with no adequate protection within the country, much more of Chinese steel will start entering in the next few months impacting the local market severely,” said a ministry source requesting anonymity.
In a recent address to the industry, minister for steel, Ram Vilas Paswan said that at the current rate of imports, India may end up importing 6 million tons of steel by March 2009 accounting for over 10 percent of its current steel production, which is 58.64 million tons.
The reason why India is scared of China the most compared to other steel exporters -- after all India also imports steel from Ukraine and Taiwan where prices are almost as cheap -- is the fact that China’s steel industry too is suffering from excess production and falling consumption, which are forcing it to adopt aggressive measures to ship out existing stocks.
According to Market Avenue, a Beijing based business intelligence outfit, China will add 50 million tons to its steel production capacity this year, which will take its total output to 400 million tons by the end of the year.
But, even as China is producing capacity relentlessly, its consumption is taking a hit. Steel Business Briefing, a China-based steel consultancy outfit predicts that steel consumption in China will grow by only 8-10 percent in the second half of next year, as little as half the 16 percent growth seen in 2008.
“[Consequently], not only does such a big capacity exceed the demand at the current time, but even goes beyond expectation for the near future,” said Young Jerry, analyst at Market Avenue.
Nevertheless, heeding the industry pleas for taking it out of a “serious situation,” India re-imposed a duty of 5 percent on steel imports last week. The duty was removed six months ago to stall steel prices in the country that were ruling at all-time highs of over US$1,100 per ton. Moreover, import restrictions were also imposed on some items of finished steel products like seamless tubes and pipes from China.
Still, the industry says, that’s hardly enough. “The 5 percent (import) duty may not be adequate because despite the duty, the landing cost (of imports) is lower than the production cost of local steel makers,” the source from the steel ministry said.
Reports say that while China is offering steel at US$440 per ton, domestic prices in India are ruling at almost US$700. So, the latest duty would push import cost by just US$22 per ton.
"This is why the industry wanted at least 15 percent import duty,” said Chetan Bijesure, director, FICCI. “But, the finance ministry in its wisdom may have decided on the 5 percent levy to protect consumers’ interests.”

Source: UPI Asia