Govt should curb imports of stainless steel products to boost local production: ISSDA

The duty on critical raw materials needs to be reduced to nil from the existing level of 2.5% in order to create a level playing field for domestic SS product makers to compete with China and other countries

Like other manufacturing sector in India, stainless steel industry has also been facing extreme difficulty in the last few years.  Based on expectations of 7-8 percent economic growth, the Indian stainless steel industry has made substantial investments towards capacity expansion and modernisation. However, these investments now stand in great jeopardy because of the surge in imports, especially from China.  
 
Imports of stainless steel flat products have risen from 324,460 metric tonne (MT) in 2013-14 to the highest ever record of 459,164 MT in 2014-15 registering 41 percent growth. Imports from China have more than doubled from 111,764 MT in 2011-12 to 231,602 MT in 2014-15. China now accounts for more than 50 percent of the import basket. This is the single largest threat for the industry today. This has led to the domestic stainless steel industry having low capacity utilisation of less than 50 percent.
 
The import surge from China can be attributed to the following factors:

• Excess capacity and surplus production in China: From being a net importer of stainless steel in 2009, today China is the world’s biggest exporter of stainless steel. There is huge surplus production of stainless steel in China which is being diverted to growing markets like India.
• Currently, there is 63 percent capacity utilisation in China. One can only gauge the situation when China starts using its capacity to the fullest. 
• Even when such surplus capacity does exist, China still envisages increasing its steel melting capacity by another 6 million tonnes and cold rolling capacity by another 3 million tons over the next two years
• With the distinct economic slowdown in China with a severe contraction in local industrial demand, it can be concluded that China would export their surplus production to growing markets like India. 

 
Duty disparity

Table 1: Comparison of the import duty structure between India and China

There exists a favourable fiscal policy in China which combines high rates of import duty on finished goods with virtually nil duties on raw materials. This ensures that Chinese stainless steel manufacturers simultaneously enjoy the benefits of cost advantage on inputs and tariff protection from imports on output. This policy of the Chinese government of providing dual protection to the local stainless steel industry has completely skewed the rules of competition in favour of the Chinese manufacturers. A comparison of the import duty structure between India and China, as shown in Table 1, clearly brings out the stark difference between the two.
 
Even other countries like Brazil, Indonesia, Thailand and Vietnam have higher duties on stainless steel flat products. For example, Brazil has 14 percent import duty and ASEAN countries like Indonesia, Thailand & Vietnam have 10 percent import duty.
 
Further, even carbon steel flat products & other alloy steel flat products in India enjoy the benefit of 12.5 percent duty (there were two consecutive duty hikes of 2.5 percent each in the months of June 2015 & August 2015). Considering the fact that imports occupy 45-50 percent market share, there is a crying need for increasing the import duty on stainless steel flat products.
 
Added to this, China also imposes export duty on critical stainless steel raw materials as seen in Table 2. These export duties have the effect of discouraging exports of raw materials from China resulting in artificially lowered prices in Chinese markets.
 
Since the domestic stainless steel industry is heavily dependent on imports for meeting its raw material requirements, the very inception of cost disadvantage lies in a distorted and discriminatory duty structure on inputs.

Other cost advantages enjoyed by Chinese stainless steel manufacturers over their Indian counterparts are:

• Availability of large coking coal deposits in China have ensured that local coking coal prices are significantly lower as compared to other countries. This in turn results in lower ferro chrome costs for Chinese manufacturers. As opposed to this, India is completely dependent on imports for meeting its coking coal requirements.
• Borrowing cost in China at around 4-5 percent is far lower, as compared to India where it is in the region of 12-13 percent.
• The Chinese currency has been relatively stable against the US Dollar and therefore Chinese manufacturers do not have to incur any hedging cost. However, the volatility of the Indian Rupee against other currencies has increased the hedging cost for the domestic stainless steel industry (currently in the region of 8 percent per annum). Considering the overwhelming share of raw material to overall cost (around 70-75 percent) and dependence on imported raw material, it is only too obvious that that the competitive edge of the domestic stainless steel industry has been completely blunted.
• Power cost in China is at least 30 percent lower as compared to India. This is so because the power prices are kept at an artificially low level because of Government controls on fixation of power tariffs.

 
The Government of India has from time to time imposed certain measures to curb unfair trade practices of overseas players. These measures were aimed at creating a level playing field, but they have been ineffective as can been in the import data trend above.
 

Table 2: China's export duty on critical stainless steel raw materials

Although, anti-dumping duty was imposed on imports of cold rolled flat products of stainless steel in widths of 600 mm-1250 mm from Korea, China, EU, Taiwan, South Africa, USA & Thailand. However, this anti-dumping duty proved to be completely ineffective due widespread circumvention of duty. It was easy to import higher widths (widths more than 1250 mm) and slit the same into narrower widths before final application at a very nominal cost. The cost of slitting and scrap generation was extremely insignificant as compared to the average incidence of anti-dumping duties levied.
 
The contention of circumvention is well borne out by the fact that there was a complete change in the pattern of imports after the imposition of duty as evident from the final findings of the DGAD, Ministry of Commerce report dated October 12, 2015. DGAD final findings have pointed out circumvention of this duty, virtually making the duty ineffective. Therefore, government must initiate the investigation in anti-circumvention petition (on width more than 1250 mm) at the earliest to check this unwarranted imports.
 
Increase BCD on SS flat products & reduce duty on crucial input

N C Mathur, president, Indian Stainless Steel Development Association

In order to protect and revive the domestic ailing stainless steel sector government must enhance basic customs duty (BCD) on stainless steel flat products from the existing level of 7.5 percent to 15 percent in the budget. While the duty on all other forms of steel (carbon steel, alloy steel and stainless steel long products) was increased by 5 percent in two tranches of 2.5 percent ( in June 2015 & August 2015), stainless steel was completely kept out. This is extremely strange considering the fact that imports currently account for 45 percent market share in the organised sector in stainless steel whereas the share of imports in other segments is in the region of 10-12 percent.
 
There is a crying need to enhance the import duty from 7.5 percent to 15 percent on stainless steel flat product. The advantage of such a measure is that basic custom duty cannot be circumvented in any way whatsoever. Further, given the competitive disadvantages being faced by Indian manufacturers, a duty increase will help to create parity and promote free and fair competition.
 
The duty on critical raw materials like pure nickel, ferro nickel, SS scrap and MS scrap also needs to be reduced to nil from the existing level of 2.5 percent in order to create a level playing field with China and other countries.
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N C Mathur is the president of Indian Stainless Steel Development Association (ISSDA)