 "Pruning of MIP, conditional safeguard puts flat steel makers in a fix")
During the past one week, domestic steel industry saw the government take steps to curtail imports of the commodity from several countries apart from China as it extended MIP on 66 steel products and placed conditional safeguard duty on 37 steel alloys. However in practice, benefits that were available prior to these measures get diluted. MIP earlier was on 173 products and there were no conditions in safeguard.
As per Platts, weekly domestic hot-rolled-coils landed prices ex-Mumbai stood at Rs. 31,000-32,000 per tonne ($464-479 per tonne), while similar material is being offered by Chinese mills at $370-375 per tonne free-on-board (FOB) China.
Due to this unfavourable price equations with reduced protections, profitability of large integrated companies such as Tata Steel, JSW Steel, Steel Authority of India and Bhushan Steel are expected to see shrink for its cold-rolled steel segment. Further, since hot-rolled steel is the raw material for cold-rolled products, demand for the cheaply priced hot-rolled is also expected to suffer in turn hurting all major players of the domestic steel market. Cold-rolled steel products or flat steel finds wide application in auto-division.
In the domestic market, consumption of flat-rolled products is much higher than non-flats. In the year ended March, India consumped 5.8 million tonne flat products as against 108,000 tonne consumption of non-flat products, said the steel ministry annual report for FY16.
"The extension of MIP for the next two months is unlikely to provide much relief to the domestic steel players as the share of 173 steel products under MIP in India's total steel imports was significantly higher at 95 percent as against the current 66 product-gamut which forms only about 29 percent of total imports", ICRA said separately in a report.
"An MIP extension for two months on just about 66 steel products is clearly an interim measure as fundamental demand-supply equation cannot undergo any major change in this span of time. It clearly means that the government is buying time before it rolls-out some stronger long-lasting measures to fix the cheap steel import issue," Jayanta Roy, senior vice president-co-head corporate sector at ICRA ratings agency told Business Standard.
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Brokerages said anti-dumping duty is seen like a long-term remedy for the industry bleaquered with cheap imports. Currently, there has only been a recommendation of provisional anti-dumping duty on hot and cold-rolled steel products. Cold-rolled steel products carry no MIP limit or safeguard duty at present.
"The current measures (MIP and safeguard) are product and country specific. There needs to be a longer-duration measure which will cover the entire value-chain and for this anti-dumping looks like the right measure," said Ritesh Shah, senior analyst with Investec Securities. "If the measure is not across entire value chain, secondary producers will find it tough to survive," he added.
Despite the current measures, Indian steelmakers find it challenging to sell in the domestic market due to a general liquidity crunch prevailing in the economy and seasonally muted steel demand due to the monsoons, said brokerages. Domestic steelmakers are able to increase sales only to the extent of the gap created by the decline in imports.
"Prices are not likely to rise unless steel consumption improves from end-user sectors such as construction and infrastructure where a number of projects are stalled due to lack of funds," said Charlotte Rao, steel analyst at S&P Global Platts.
While Indian mills are ramping up newly expanded capacities and raising production, steel consumption is likely to be muted till monsoons last, she added.
Meanwhile, steel industry says the current measures have given confidence to the market and indicates that the government is serious about curtailing imports and giving relief to the domestic steel industry. The conditional safeguard duty has come from Finance Ministry while the MIP has come from commerce ministry. This means the various departments of government are working in tandem to avoid duplication and is giving proper thought to address industry woes.
"Long-term measures such as anti-dumping if implemented are trade remedial measures and also WTO compliant. In flats, about 90 percent of products can be produced domestically. Barring 1-2 categories in flat product division, due to lack of technology, remaining can be produced by domestic players," said Sanak Mishra, secretary general at Indian Steel Association.