How Indian Steel Companies are gearing up to Deal with Imports Influx in Future?

The U.S.'s announcement of trade restrictions on steel and aluminium imports in March last year has not only initiated a trade war between China and U.S. but has also resulted in major steel consuming countries like Europe, Mexico, Canada increasing trade barriers on steel imports in order to protect their domestic steel industry. This change in trade dynamics has resulted in the increased risk of steel oversupply in the rest of the global market including India.

Apart from this, the tepid steel demand in world's largest steel producing country, China has led to fall in its steel prices thus increasing chances of cheap steel imports being dumped into India. Thus, in order to protect the domestic steel industry, Indian steel producers are aiming at capital expenditure and development of high-grade steel in an attempt to substitute imports.

The capital expenditure plans of Indian steel companies

The Indian steel majors such as SAIL, Tata Steel, JSW Steel are currently undergoing capacity expansions as their plants.

Tata Steel Kalinganagar has kicked off its phase-II expansion of five MnT cold rolling mill, scheduled for production by FY21. The expansion will install one of the biggest blast furnaces in the world, taking the total capacity at Kalinganagar to eight MnT catering entirely to the auto sector. The investment for phase-II expansion is INR 23,500 crore.

In FY18, JSW Steel announced a capital expenditure (capex) plan of INR 26,800 crore for the next three years, which includes augmenting crude steel capacity at its Dolvi plant to 10 MnT from 5 MnT and revamping and upgrading capacity at Vijayanagar to 4.5 MnT from 3 MnT. The company is also looking at expansion of existing units, along with new greenfield steel projects in Odisha and Jharkhand, for which it has already started acquiring lands.

SAIL is engaged in modernisation of its facility and aims to augment its capacity to 50 MnT entailing an investment of INR 150,000 crore by 2025. SAIL's current capacity stands at 21 MnT. Apart from this, SAIL is making rail wheels to substitute imports from Netherlands and France and API (American Petroleum Institute) specification grade pipes in oil and gas sector to stop imports (of these products) from China, South Korea, and Japan. SAIL is also focusing on the development of new grades steel that substitute imports from Russia in segments such as defence, submarine and shipbuilding.

As per few market participants, steel imports may flood the Indian market mainly because of their cheaper price and not because of lack of availability of the products in the country. Whereas few believes that developing higher grade steel products such as that of Korean, Japanese, or German will give much needed advantage to the Indian steel manufacturers.

How much steel does India import?

In 2018, India became the second largest steel producer in the world replacing Japan with crude steel production of 106.5 MnT. However, the domestic steel industry has been dealing with the issue of high imports for a while now. Since 2016, the government has taken several steps to curb cheap imports by imposing minimum import price which was followed by anti-dumping duty.

India that had become net steel exporter over the last two fiscal years, is once again at the risk of rise in cheap imports into the country amid falling global steel prices, especially from China.

According to the customs data, India's finished steel imports during Apr'18-Jan'19 of ongoing fiscal year 2018-19 stood at 6.55 MnT, against 5.5 MnT in the corresponding period of previous fiscal. In terms of exports, the same has been recorded at 6.45 MnT in first ten months of FY19 against 8.22 MnT in the corresponding period of the previous year.