Indian steel industry loses out to cheaper imports

Indian steel industry loses out to cheaper imports

In fiscal 2015, India imported 9.3 million tonnes of finished steel, up 71.1% from a year ago, while it exported a mere 5.5 million tonnes

Sometime early in the last fiscal year, Mumbai Port Trust suddenly discovered that vessels containing steel shipments from countries such as China, Japan and Korea were seeking permission to dock. The port obliged and the trend continued all year.

By the end of the fiscal year, the port, among those handling the bulk of steel imports into India, saw its incoming iron and steel shipment kj s rise to 4.1 million tonnes (mt) from 1.9 mt, a 117% jump, the highest in three years.

While the port had no reason to complain about the rise in traffic, domestic steel companies cried hoarse. And their ordeal is far from over.

But why this sudden interest in the Indian market from these countries?

While shipments from Japan and South Korea are nothing new as steelmakers there take advantage of free trade agreements (FTAs) with India, making their exports duty-free, it is China that is causing concern.

“Japan and South Korea are largely exporters of automotive-grade steel, which is not produced extensively in India, and they have been exporting even earlier. But China exports hot-rolled coils which compete directly with us; this year, they have increased their exports by a huge margin,” said T.V. Narendran, managing director, Tata Steel Ltd, on the sidelines of a press conference on 21 May.

Tata Steel, with a domestic capacity of 10 million tonnes per annum (mtpa), manufactures hot-rolled coils (HRCs) which are largely used for manufacturing automotive panels and white goods such as television sets, refrigerators and washing machines.

“A majority of this incremental import was from China. Any further jump in imports from here on is going to be a major concern for steel companies in India,” said A.S. Firoz, chief economist, economic research unit, JPC.

Imports from China rose by almost 70% in the last financial year due to two factors—first, Chinese steel prices are much lower than Indian steel prices; and two, if an Indian importer intends to import steel products from China or any other rouble-FTA country with the end-use of eventual exports, they are also exempted from import duty. This makes lower-priced Chinese steel preferable to steel from Japan, South Korea or even domestic steel, Firoz said.

“Prices of Chinese flat steel products, which now meet the quality standards of established Indian companies, are usually 15% lower than Indian steel prices, thereby making imports very attractive. This is true of imports from countries such as Russia and Ukraine, too,” said Vivek Gupta, vice-president, Indian Chamber of Steel, and a leading steel dealer in Mumbai.

While lacklustre Indian demand is keeping prices of steel in check, a lower exchange rupee-rouble exchange rate and tensions between Russia and Ukraine are making India a preferred destination for exports from these countries.

“Currently, the landed cost for China imports is 15% cheaper than India’s domestic prices. Russia has started getting closer to this due to favourable currency rates. Another important issue is that domestic producers change their product focus and their pricing, with the slightest change in demand. This makes them unreliable suppliers,” said another dealer of flat steel products in Mumbai.

“Indian importers say that the low cost of production in both countries (Russia and Ukraine), the devaluation of the rouble, along with a decline in domestic demand in Russia and Ukraine, made it possible for these countries to export steel to India at competitive prices,” said Charlotte Rao, associate editor, steel, Platts, a leading global commodity information provider.

While Mumbai Port Trust rejoices over the traffic staying high in the current fiscal year as well, the Indian steel industry is bracing for a long struggle ahead.

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