India's steel sector faces import surge. What are the challenges and concerns?

The Indian steel sector has witnessed a significant shift in recent years, with a notable increase in steel imports. After a gap of five years, the country became a net importer of steel in FY'24, and this trend is showing no signs of slowing down.

Notably, China's share in India's steel imports has grown substantially, reaching approximately one-third since FY'23-24. In response to these developments, the Ministry of Steel has conducted an assessment of the current trends and challenges facing the sector.

Concerns about Chinese steel imports

The Indian Steel Association (ISA) has expressed concerns about the diversion of Chinese steel imports through ASEAN countries, particularly Vietnam, to take advantage of the zero-customs duty benefit under the India-ASEAN Free Trade Agreement (FTA). Additionally, the significant investments made by Chinese companies in the region aim to target export markets like India.

Impact on domestic steel industry and profitability

The influx of cheaper Chinese steel has significantly impacted the profitability of Indian steel companies. The import price of steel products from China is significantly lower than the domestic price, even with the current 7.5% Basic Customs Duty (BCD). This has led to a decline in profit margins and threatens the investment cycle in the Indian steel industry. Additionally, even if the import tax is raised to 12.5%, steel from China will still be cheaper than steel from India.

The Indian steel industry is facing a decline in profitability due to cheaper imports of finished steel. The profitability of the industry fell by a significant 58-95% y-o-y in Q1FY'25. Despite this, India has been adding capacity to meet its target of 300 million tonnes (mnt) of crude steel capacity by 2030. However, the ongoing disruptions in the investment cycle threaten the industry's planned investments of INR 75,000 crore.

Safeguarding the investment ecosystem

Amidst a global economic downturn, many nations are implementing stricter import controls, particularly from China, to protect their domestic industries. This will help mitigate potential losses and ensure continued growth.

Importance of steel sector

The steel sector plays a vital role in the Indian economy, with a significant multiplier effect on both GDP and employment. It is essential to prioritize "Make in India" initiatives to strengthen the domestic steel industry and reduce reliance on imports.