Donald Trump's steel plans hold out hope for India

Steel makers say use of local steel in govt-funded projects could come as a big relief for them

India’s nearly $150-billion information technology services industry is upset that the US may limit visas for skilled workers. The US is the source of 60 per cent of the industry’s revenue and Indians a year ago got two-thirds of the total H-1B visas issued. The visa uncertainty under the new Republican administration has led the National Association of Software and Services Companies to moderate the industry’s growth outlook for the current year. 

In contrast, to the delight of Indian steel industry, which found to its dismay imports commandeering most of local steel demand growth during 2014-16, President Donald Trump spoke at length during the election campaign of actions to revive the US steel by guarding it against unfair trade practices by exporting countries. As he travelled through the states, Trump targeted China in particular for low-priced imports shrinking job opportunities in the US. He spoke of ending the “menace” by slapping a 45 per cent duty on imports originating in China. 

Criticism that his reaching the White House would be a threat to free trade did not bother Trump a bit as he went on campaigning holding the ‘America First’ placard. For, he knew what language he should speak in the rust belt states such as Pennsylvania and Ohio. Trump wanted to court sympathy of the shrinking rank of steel workers, whose skills are industry specific, by promising to infuse life in US steel that has considerably shrunk in capacity and production over the years mainly because of cheap imports. According to the International Trade Administration, the US has persistently remained in deficit in global steel products trade. 

Of all that he said about steel, what particularly the Indian industry found encouraging was: “It will be American steel that will fortify the country’s crumbling bridges. It will be American steel that sends our skyscrapers soaring into the sky... We are going to put American produced steel back into the backbone of our country.” 

Many here do suspect that Trump’s stand on the use of US made steel for US works has rubbed on our steel ministry, which is to seek cabinet approval for compulsory use of locally produced steel for government funded projects. 

P K Singh, Chairman, SAIL.

Duties and tariffs

A government can support the domestic steel industry facing unfair competition from predatory imports either by raising the tariff wall, as Trump has threatened China, or by issuing orders that locally produced metal be used in large domestic projects. Even while the US commerce department has remained active in introducing anti-dumping duty, playing with import tariff is like skating on thin ice. If a country wants to wear the ‘free trader’ badge then it must in all situations play by the rules of the World Trade Organisation, both in letter and spirit. The other day, the US commerce department put heavy anti-dumping margins on imports of steel concrete rebar from Japan. Taiwan and Turkey also came under the glare of the department but producers of steel rebar there got off lightly with small anti-dumping duty. 

If the Indian steel ministry’s proposal sees the light of day then that would come as big relief for the local industry on top of a series of trade actions such as safeguard duty, minimum import price and anti-dumping duty on as many as 124 steel products. This is because public sector undertakings and government-funded projects account for around one-fifth of total steel consumption. 

The mandatory local steel use move by the official sector comes at a time when the industry had to contend with a tepid 3.5 per cent growth in overall domestic steel consumption to 68.892 million tonnes in the 10 months to January 2017. This amounts to India missing the World Steel Association demand growth projection of 5.4 per cent. 

During April-January period, the country’s steel production was up 9 per cent to 80.716 mt. 

A challenge common to India and the US is not only to give a push to steel usage, but also to see that the extra metal comes from local mills and not imports. This is particularly relevant for India where per capita use of the metal is a low 61 kg against a world average of 208 kg. It is proven that steel demand gets triggered when a country turns its focus on infrastructure development or renewal. China’s per capita steel consumption at 488 kg is on account of sustained state stimulus provided to infrastructure and building construction and demand from an expanding manufacturing sector. Importance of the metal for the US and India is also underpinned by employment it generates in steel making chain. 

A big push

Last June, Union Finance Minister Arun Jaitley said in Beijing that India would have to invest $1.5 trillion in the next ten years to fill up infrastructure gaps. On his part, Trump made $1 trillion investment in infrastructure renewal a signature proposal during the campaign. It is not possible to make a precise estimate of incremental steel demand that results from any stepped up investment in infrastructure. Even then, investment bank Jefferies says a 6 per cent rise in US steel consumption will follow in case the US sees a $100 billion of annual increased infrastructure expenditure. 

Singing an identical tune, Steel Authority of India Chairman PK Singh says: “We in the industry are holding store by infrastructure development programmes and drive to ensure success of ‘Make in India’ campaign. All this apart, industry initiative to lift steel intensity of rural economy will help in bridging the gap between our and world per capita steel use.” 

Tata Steel Managing Director TV Narendran, who must ensure market disposal of huge volumes of extra metal flowing from it’s recently fully ramped up mill at Kalinganagar in Odisha, is focussed on value addition to flat steel to the extent of making doors, windows and ready to use toilets using third party converters backed by a heavy promotional campaign. Narendran also thinks a big market for galvanised sheet for rural housing is awaiting the industry in the country’s north-east and beyond in Bangladesh and Myanmar.  

Product and new market development automatically gets a fillip when industry working improves. Mercifully, the difficult times of 2015 and parts of 2016 are behind the industry with steel prices having made smart recovery since the middle of last year. But at all times like the US, India must keep vigil on predatory steel imports.