News Room - Steel Industry

Posted on 19 Nov 2008

Chinese threat to Indian steel mills seems real

 

The Indian steel industry, which is currently bearing the twin impact of a sharp fall in demand and a cut in production, could likely face a bigger blow post December, when China plans to lift export tax on steel. China, which is the world’s largest steel market, has recently proposed to remove the existing 5% levy on its steel exports from December 1, in a bid to boost the local steel industry which has been severely hit by the global slowdown. China had earlier imposed export duty up to 15% to discourage exports, as local demand was high and steep domestic steel prices were affecting the local economy.

 

According to Indian primary steelmakers, this move by China could likely lead to an increase in steel imports from China, especially as India currently has no import duty to check such a move. Duties were removed in April.

India annually imports about 3.6 to 4 million tonnes of steel of various categories, of which, last year, about 1 million tonnes came from China alone. “If this year too Chinese steel of the same quantity comes to India, then the industry would be severely affected,” said the senior official of a large private steel company.

 

The Indian steel industry is witnessing trying times as demand has slowed down sharply and companies are forced to cut production to keep operations viable. Although most Indian companies are reluctant to officially announce production cuts, it has been widely reported that all companies have slashed output by an average of 30%.

 

This is mainly to counter the sharp fall in prices of hot rolled coils that have seen lower offtake due to slow demand for user industries such as cars and consumer goods. Also with international prices softening sharply, Indian steel makers were prompted to cut their product prices also.

 

As the government had asked steel companies to maintain prices to stem inflationary pressures at a time when internationally prices were rising, the fall in Indian steel prices, when it finally came was relatively less —about 20-25%—compared to the 40-50% fall globally. The threat of imports at such a time has led Indian steel producers to ask for imposition of import duty in the range of 5% to 10% to protect the local industry from Chinese steel.

 

The government has already taken certain steps in that direction. From October 31, India has withdrawn export duties on certain iron and steel products after the prices fell. Duties on products such as pig iron, billet and long products including angles and sections were imposed in May and revised in June.

 

Indian steel companies say that the local steel here is unfairly placed with respect to Chinese steel as their government provides subsidy to raw materials. This lowers cost of production. When coke prices internationally were at $550 per tonne, Chinese steel manufacturers were reportedly buying coke at $300 per tonne. “This places Chinese steel manufacturers at an unfair advantage compared to us,” said one steelmaker. While Tata Steel and the state-owned had captive resources, private steel companies such as Essar Steel, JSW Steel and Ispat Industries bought iron ore and coke from the market.

 

The Vinod Mittal-run Ispat Industries has defaulted on a Rs 100-crore repayment to UTI due to the current slowdown. It had earlier asked state-run NMDC to reduce iron ore contract prices, after the state-run ore producer had raised prices despite a fall internationally. This is in line with a recent development where Brazilian iron ore major CVRD withdrew a 12% price increase to Asia, after steelmaker clients asked the ore producer to consider the impact from the global financial crisis and the slowing demand for steel.

 

Interestingly, it has been reported that the Indian steel ministry has written to the finance ministry for re-imposing import duties on steel, although no decision has been taken as yet.