 "Taming imports precondition for improving steelmakers' viability")
India's ambition to be counted as a developed country in the not-so-distant future will find justification on many counts. The World Bank has estimated India's current gross domestic product at $2.067 trillion. The big challenge is to improve efficiency in resource use, including human capital. But where does our century-old steel industry fit in the country's march towards a developed economy? Since a precondition to becoming a developed economy is to have a world class infrastructure, the building of which will require supply of large volumes of steel on a sustainable basis.
Consider China, which two decades ago saw logic in building mammoth steel capacity at a pace which left the rest of the world stunned. Its near-total dependence on import of high-grade iron ore remains a concern, but that never came in the way of China acquiring the distinction of having nearly half the share of world production and use of steel. The Chinese economic miracle is mounted on a strong infrastructure, for the creation of which it built a one billion tonne (bt) steel capacity.
Prime Minister Narendra Modi made a triumphant declaration some time ago that India can match China in steel capacity. Hyperbole that was. The world does not need another country with as big a steel capacity. In fact, our steel industry, now pursuing a capacity target of 300 million tonnes (mt) by 2025, is bearing the brunt of Chinese aggressiveness to sell its surplus metal in the world market.
Chinese steel production down 1.6 per cent to 340.164 mt in the first five months of 2015 will likely have marginal bearing on export surplus of cheap steel products. Beijing withdrawing tax rebate on steel containing hardening chemical boron and a slew of anti-dumping measures in the US and the European Union should, however, make some impact on export sales.
Steel pushed as boron enriched for tax break raised howls of protests in all importing countries. Hardly containing any boron, Chinese steelmakers managed to pull the wool over the eyes of Customs authorities.
What is important for us to note is a statement by China Iron & Steel Association that "There is still demand for steel in international markets and there is a price gap between steel at home and abroad. Chinese steel exports are still competitive and will not drop by a large amount". Expect China to stay export-aggressive in countries where steel prices are higher than in its own market.
India remains vulnerable that way. Steelmaking in itself by leading producers here is highly cost-effective. What, however, inflates costs are higher capital borrowing rates and freight charges, logistics deficit and a raft of taxes.
A back-of-the envelope calculation will put additional charges on all these heads at up to 25 per cent over most other leading producers.
This and a low import duty regime plus foreign trade agreements (FTA) with Japan and South Korea, created the condition for a 72 per cent surge in arrivals here of foreign-origin steel to 9.3 mt in 2014-15. Imports further took a leap of 53.1 per cent to 2.54 mt during the April-June on a quarter-on-quarter basis.
Rise in customs duty by 2.5 percentage points to 7.5 per cent on long products and 10 per on flat steel in mid-June has failed to provide relief to domestic producers. What is particularly distressing is the arrival of low-value construction grade steel, like TMT bars.
The Union Budget has an enabling provision to raise the steel import duty to 15 per cent. To avoid further injuries to local steelmakers, duty at that rate requires immediate introduction.
Equally importantly, steel must remain outside the scope of all future FTAs.
BUILDING BLOCKS To build such infrastructure, India will require a large volume of steel on a sustainable basis
Much of China's progress can be attributed to its strong infrastructure, backed by 1 bt steel capacity
India's steel sector hit by surge in imports, especially following FTAs with Japan and South Korea
Consider China, which two decades ago saw logic in building mammoth steel capacity at a pace which left the rest of the world stunned. Its near-total dependence on import of high-grade iron ore remains a concern, but that never came in the way of China acquiring the distinction of having nearly half the share of world production and use of steel. The Chinese economic miracle is mounted on a strong infrastructure, for the creation of which it built a one billion tonne (bt) steel capacity.
Prime Minister Narendra Modi made a triumphant declaration some time ago that India can match China in steel capacity. Hyperbole that was. The world does not need another country with as big a steel capacity. In fact, our steel industry, now pursuing a capacity target of 300 million tonnes (mt) by 2025, is bearing the brunt of Chinese aggressiveness to sell its surplus metal in the world market.
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For the first time since 1995, Chinese steel demand growth in 2014 was negative, on the back of cooling domestic requirements, particularly from the construction sector. No wonder, Chinese steel exports surged 51 per cent to 93.78 mt in 2014, when Indian steel imports from China jumped 1.58 mt to 2.83 mt. What remains a cause of concern for Indian steelmakers and New Delhi should note is that Chinese steel use, according to World Steel Association (WSA), will be recording a fall of 0.5 per cent this year and the next. WSA says, "In the medium term, no strong rebound is expected in China. Some uncertainty remains regarding the impact of government measures aimed at stabilising the decelerating economy".
Chinese steel production down 1.6 per cent to 340.164 mt in the first five months of 2015 will likely have marginal bearing on export surplus of cheap steel products. Beijing withdrawing tax rebate on steel containing hardening chemical boron and a slew of anti-dumping measures in the US and the European Union should, however, make some impact on export sales.
Steel pushed as boron enriched for tax break raised howls of protests in all importing countries. Hardly containing any boron, Chinese steelmakers managed to pull the wool over the eyes of Customs authorities.
What is important for us to note is a statement by China Iron & Steel Association that "There is still demand for steel in international markets and there is a price gap between steel at home and abroad. Chinese steel exports are still competitive and will not drop by a large amount". Expect China to stay export-aggressive in countries where steel prices are higher than in its own market.
India remains vulnerable that way. Steelmaking in itself by leading producers here is highly cost-effective. What, however, inflates costs are higher capital borrowing rates and freight charges, logistics deficit and a raft of taxes.
A back-of-the envelope calculation will put additional charges on all these heads at up to 25 per cent over most other leading producers.
This and a low import duty regime plus foreign trade agreements (FTA) with Japan and South Korea, created the condition for a 72 per cent surge in arrivals here of foreign-origin steel to 9.3 mt in 2014-15. Imports further took a leap of 53.1 per cent to 2.54 mt during the April-June on a quarter-on-quarter basis.
Rise in customs duty by 2.5 percentage points to 7.5 per cent on long products and 10 per on flat steel in mid-June has failed to provide relief to domestic producers. What is particularly distressing is the arrival of low-value construction grade steel, like TMT bars.
The Union Budget has an enabling provision to raise the steel import duty to 15 per cent. To avoid further injuries to local steelmakers, duty at that rate requires immediate introduction.
Equally importantly, steel must remain outside the scope of all future FTAs.
BUILDING BLOCKS
- India will need to build world-class infrastructure in its march to become a developed country