India: Steel Users appeal Government Not to Impose Safeguard Duty on Imports

Amidst strong rumours that India will soon announce safeguard duty on steel imports (upon the domestic steel players' request), the country's end-user segment along with Small and Medium scale enterprises as well as importers have appealed the Indian government not to impose safeguard duty on steel before considering the views of all the steel industry's stakeholders. The end-user industry's appeal against the safeguard duty is inclusive of the following points:

There is no surge in steel imports

The steel imports in India is barely 6% of the country's total steel production and that the imports have declined considerably over last three years, with imports of May'19 just 4.68% of the total steel production against 5.66% in Jan'19.

No injury to domestic mills

The EBIDTA (Earnings before interest, depreciation, tax, and amortization) of the steel mills has been growing consistently in last three years and such a minor quantity of imports is unlikely to have any impact on companies' operating margins.

Indian steel users are paying high price

The domestic prices prevailing in India are much higher than the prevailing international prices and the benchmark is considered to be HRC. In last six months, the total quantity of HRC exported out of India is nearly 60% higher than imports and the export prices are substantially lower than domestic prices.

Safeguard duty may disrupt the Indian steel sector

There are many grades and sizes if steel which is not manufactured in India and many export products require such steel which is not readily available in the country. The duty imposition would harm the end user industry by the way of increased costs, possible closure of small manufacturing units, an increase in unemployment amongst workers in steel sector. The imposition of duty would be unfair to the imported products that are in pipeline and would bring in huge financial blow to the importers.

"Since 2015, the Indian government has imposed a host of protection measures such as Safeguard duty, Min Import price, Anti-Dumping duty, quality control order apart from increasing basic customs duty twice from 7.5% to 10% to 12.5%. These measures have provided a more than' Helping Hand' to the Indian steel mills to come back on track as is seen from their much-improved capacity utilization and very healthy EBITDA. Also, India has moved from 3rd to being the 2nd largest producer of steel. However, our per capita steel consumption at 69kgs is much lower to the World average of about 208kgs and thus our target should now be to increase steel consumption. Today it is more than essential to provide a HELPING HAND to the Steel Users in terms of right pricing, consistent supply and access to higher quality material. Only then the target of achieving 160kgs/head consumption by 2030-31 as per NSP-2017 is likely to be achieved. That is why we have appealed to the government to look into the demands of steel users mainly in SME and MSME sector", quoted SUFI (Steel Users' Federation of India) President, Mr. Nikunj Turakhia.

The other side of the story

The Indian Steel Association has filed a petition with Directorate General of Trade Remedies on behalf of domestic steelmakers seeking 25% safeguard duty on steel imports. ISA has argued that as a consequence of duties imposed by the U.S., and consequently by the EU, Turkey and Canada, steel exports from some Asian countries are being diverted to India.

The ISA petition seeks tapering safeguard duty on semis, flats, longs, pipes and tubes, stainless steel and railway products, over a period of four years - starting with 25% in the first year and going down to 22% in the fourth year.

Steel exporters from South Korea, Japan, China, and ASEAN countries have diverted as much as 43% of the volume, or 1.204 MnT, that they lost from the U.S. into India, the petition claimed.

The reality

According to customs data, in last fiscal 2018-19 ended in March this year, finished steel import stood at 7.83 MT, registering an increase of 4.7% in comparison to 7.48 MnT in 2017-18.

Stainless steel, flat products such as hot-rolled and cold-rolled coils, galvanised plain- or galvanised corrugated-coated and electrical sheets are the major categories that are being imported from other countries. Among the grades that are imported, there are some that are not manufactured in adequate quantity in the country viz. CRGO, CR sheets with zero bends, API grade steel sheets/coils, special alloy steels of some grades used in automobile components etc.

In 2015, as a measure to protect the domestic steel industry, India had imposed safeguard duty on steel imports resulting which the same declined to 7.96 MnT in 2016-17 from 13.43 MnT in the previous year and 10.61 MnT in 2014-15.

Although the 2018-19 steel imports are still lower than the above mentioned years, the ISA's petition argues the current trend of imports to be compared to the import levels of 2013-14 which were around 6.01 MnT as the imports in 2014-15 and 2015-16 had an abnormal and unusual spike amid adverse global market conditions.

In terms of prices, there has been a sharp decline in the prices of steel imports despite a steep increase in production costs. For example, between October 2018 to June 2019, international cost index for hot rolled coils rose by USD 27 to USD 339 per tonne from USD 312, while prices of imported HR coils (benchmark China HR export FOB prices) declined to USD 490 a tonne from USD 547. Prices of the same in India have come down to INR 40,000 per tonne from INR 47,000 during the same period, which is a decline of about USD 100. From Jan-May'19, India exported about 1.67 MnT of HRC whereas its imports stood at 1.02 MnT.

Thus, whether the Indian government will impose safeguard duty or give decision in favor of end-user segment will be known very soon.