The proposed 20% safeguard duty on imported steel to be a welcome relief for the steel sector, which is struggling due to cheap imports from China and countries with which India has free trade agreements, says India Ratings and Research (Ind-Ra). The safeguard duty on hot-rolled coils (HRC) would benefit the integrated steel producers (ISPs) only in the short-term as it is likely to be applicable for only 200 days.
Ind-Ra estimates that the landed price of HRC imported from China will be more expensive than domestic steel prices by Rs 2000/t. This will be in stark comparison to the present situation, wherein imported HRC is cheaper by Rs 2000/t than domestic HRC. This will also provide headroom to domestic steel producers to increase their prices and volumes, provided chinese players do not reduce their prices further.
The safeguard duty is superior to the import duty since it is applicable to all nations unlike the import duty which excludes countries falling under free trade agreements. That said, the higher safeguard duty would benefit the ISPs, but negatively impact the companies involved in cold rolling and annealing of HRCs. However, the players could circumvent this by importing HRC with some value addition.
HRC has been one of the major products produced domestically and its import has hurt the domestic steel industry. Out of the total steel imports of 9.3mt in FY15, HRC accounted for nearly 25%. Indian steel producers have been facing headwinds due to the onslaught of cheaper imports, while Chinese steelmakers stepped up exports to sustain operations due to subdued domestic demand.
The proposed provisional safeguard duty of 20% would be applicable on import of hot-rolled flat products of non-alloy and other alloy steel with a width of 600mm or above.
India's import of iron and steel rose 58% during April-June 2015, making it the country's sixth-largest import during this period. The sector's contribution to stressed advances stood at 10.2% of the total advances at end-December 2014 and is among the top five sectors with stressed loans in the system.
The Reserve Bank of India in its latest financial stability report highlighted that five out of the top 10 private steel producing companies are under severe stress. These companies are struggling with delayed implementation of projects due to delays in land acquisition and environmental clearances among other factors.
Steel imports have increased primarily from China, Korea and Japan. While the imposition of import duty of 12.5% applies to China, it does not apply to Korea and Japan, with which India has bilateral free trade pacts.
Flat steel is used in various industries such as automobiles and consumer durables and the safeguard duty will mean higher costs for the end-users of these products. Also the 200 day safeguard duty will not solve all the problems facing the industry, but will provide temporary relief.
