Rising Imports Raises Concerns For Domestic Steel Players

The steel industry, which was reeling under a muted demand scenario, is now feeling the heat from rising imports. The preferential free trade agreement (PFTA) countries South Korea and Japan in the last few months have emerged as major steel exporters to India in a scenario where the steel industry is already under the threat of falling steel prices in China, which may lead to cheaper imports. The PFTA countries enjoy a lower import duty as compared to other countries. At present the import duty on Korean and Japanese steel products has been reduced to 3.13 per cent from 5 per cent in 2010 while import from the other countries attract a 7.5 per cent duty in India.

During the period of April-July 2012, the total steel imports have jumped by 56 per cent to 3 million tonnes from 1.88 million tonnes in the same period last year, according to the Joint Plan Committee (JPC). Production during this period grew by 4.3 per cent to 31.71 Mn Tonnes from 30.42 Mn Tonnes, while consumption rose by 6.9 per cent to 31.02 Mn Tonnes from 29.01 MnTonnes.  Of the total imports, Japan's steel exports to India jumped to 64 per cent from a year earlier to 5,26,000 tonnes while South Korea sent in 6,58,000 tonnes, up by 27.85 per cent on a YoY basis.

The steel price is globally down around to USD 650 a tonne while the average in India is USD 750 a tonne. This is one of the major reasons why India’s imports have risen in the last few months. The other major reason for the rise is because of the trade pacts that Japan and South Korea enjoy with India. And if the imports continue to rise in the coming months, we may see a fall in the domestic steel prices. This will only make things difficult for steel companies to make sufficient profits and to justify the high investments.

The situation worsened recently when NMDC, the largest iron ore supplier, raised the iron ore price by 8-13 per cent at a time when the international iron ore prices have fallen by more than 50 per cent in the last six months. The profit margins of Indian steel makers are already under pressure because of high input costs. In these difficult situations we can just hope that the Indian government will do something to curb the increasing imports or else it will impact the domestic steel players. JSW Steel has asked the government to set aside the free trade agreement with Korea and Japan and remove steel from the purview of these pacts.