The Indian steel industry ranks eighth in the world with an annual production of 27.3 million tonne. It accounts for 3.2 per cent of the world steel production.
Key issues
During the first nine-months of 2001-2002, domestic steel production witnessed a growth of 0.9 per cent against 12.1 per cent in the same period in the previous year. Among the major segments of finished steel, production of steel structurals and HR coils/skelp fell by 6.2 per cent and 7.4 per cent, respectively.
Other major segments viz. GP/GC sheets, HR sheets, CR sheets/coils and bars and rods reported a growth of 28.1 per cent, 19.9 per cent, 4.3 per cent and 7.5 per cent, respectively.
More From This Section
The apparent consumption of finished steel witnessed a nominal growth of 0.2 per cent during the first nine months of the financial year 2002.
Domestic consumption of steel will be a function of the growth prospects in the end-user sectors like construction/infrastructure, white goods and automobiles. These sectors have recorded sluggish growth in the recent past.
Steel manufacturers in India target primarily the North American region for exporting steel. However, the US, Canada and many European countries have levied anti-dumping duties on steel imports from countries like India. Further, issues under Section 201 of the US Trade Law is also a matter of concern. This is likely to make Indian steel un-competitive in these markets and accordingly exports are likely to decline.
In fact during the first six months of the financial year 2002, exports of iron and steel bars/rods and primary and semi-finished steel declined by 28 per cent. Imports of iron and steel were, however, higher by 6.5 per cent.
A slowdown in the global economy has resulted in a decline in steel consumption. The global steel production in 2001 was nearly 1 per cent lower than the previous year. Declining steel consumption coupled with an excess supply in the global steel market has also affected the prices. For example, internationally, the prices of HR coil have declined by nearly 42 per cent during March 2001 - January 2002.
Low global prices in addition to the sluggish growth in the domestic market and declining exports have had a negative impact on the domestic demand-supply situation. As a result, the domestic price realisations are also under pressure.
The advantage of cheap labour is getting gradually nullified by higher expenditure on other cost heads like power and fuel and freightage.
While the Advance Licensing Scheme stipulates that steel imported for the purpose of value-addition should be re-exported in the form of consumer products within 18 months, many of the imported items finds their way into the local market.
Factors that can be addressed in the budget:
Further incentives to infrastructure sectors, through tax concessions, such as reduction in service tax/corporate tax on the construction companies increased tax sops to housing projects, power plants etc.
Reduction of excise rates on automobiles, especially small cars, which might spur demand for cold-rolled steel.
Status quo on custom duties on steel products to thwart dumping from other producing countries, especially the CIS countries.
Incentives to improve exports like reduction in import duty on raw materials used in steel manufacture.