Posted on 28 Sep 2015
Safeguard duty may help steel firms increase volumes, not price
With the safeguard duty in place, the focus for
steel companies will be to improve capacity utilisation rather than
raising prices. At best, the prices could increase by Rs 1,000 a tonne
over the next 200 days, that is, till the time the duty is applicable.
There has been no price increase ever since the safeguard duty was
imposed and very little price increase will happen. In absolute terms,
it can go up to a maximum of Rs 1,000 a tonne over the next 200 days.
There is already too much capacity and demand is not that strong; JSW
Steel group chairman and managing director Sajjan Jindal said. JSW Steel
happens to be the largest steel maker in the private sector in India.
The industry, however, is treading cautiously on price, for more reasons
than one. First, China has already dropped prices by 10 per cent.
Landed imports of hot rolled coils are now at $297 a tonne compared to
an ex-plant price of $400 a tonne for the home steel.They are now
threatening to reduce prices by another 10 per cent; Jindal said. China
was anyway selling $80 below its marginal cost (the cost added by
producing one extra item of a product).
That apart, the user industry, which is anyway upset about the safeguard
duty, would not accept any significant price increase. The safeguard
duty is for six months, after which the government would take a view on
whether there is injury to the industry. If there is, then the duty
could be reviewed upwards also up to a period of four years."There is
resistance from the user industry. If cheap imports continue to flood
the market, then the steel industry will die and the user industries
will also not benefit," Jindal said.
The steel industry has already made representations to the government to
extend the safeguard duty on the entire value chain of steel products,
cold rolled, galvanised, wire rods, TOR steel. The safeguard duty is
applicable on import of hot rolled flat products of non-alloy and other
alloy steels with a width of 600mm or above.
Cheap imports from China and countries with free trade agreements like
Japan and Korea, have been hurting the sector for a while. According to
India Ratings and Research, India's import of iron and steel rose 58 per
cent during April-June 2015 period, making it the country's sixth
largest import. The sector's contribution to stressed advances stood at
10.2 per cent of the total advances as of December-end 2014 and is among
the top five sectors with stressed loans in the system.
Of the four companies where lenders have invoked the strategic debt
restructuring, two; Electrosteel Steels and more recently Visa Steel --
belong to the steel sector.Right now, the focus for the sector is to
improve capacity utilisation, which has been hovering at the 75-80 per
cent levels for the last five years, for better fixed cost absorption
leading to an increase in Ebitda (earnings before interest, taxes,
depreciation and amortisation) per tonne. Jindal says it could increase
to 86 per cent.
Right now, the focus for the sector is to improve capacity utilisation,
which has been hovering at the 75-80 per cent levels for the last five
years, for better fixed cost absorption leading to an increase in EBITDA
(earnings before interest, taxes, depreciation and amortisation) per
tonne. Jindal says, it could increase to 86 per cent.
