The extension of minimum import price (MIP) for the next two months is unlikely to provide much relief to the domestic steel players, especially those with a large presence in the flat products category, rating agency Icra said today.
MIP II is unlikely to provide the earlier level of relief (present in MIP I) to the domestic steel industry due to the exclusion of non-alloy HR and CR flat products.
Though HRC (hot-rolled coil) products would continue to get benefit of SGD (safeguard duty) protection, they remain vulnerable to the risk of international price declines, it said in a report.
"The extension of MIP for the next two months is unlikely to provide much relief to the steel players, especially those with a large presence in the flat products category, given the fact the share of 173 products under MIP I in India's total steel imports was significantly higher (95% in FY16) than that for 66 products covered under MIP II (29% in FY16)," the rating outfit said.
On expiry of the six-month validity of MIP levied on steel imports, the Union Government last week extended the scheme by a period of two months.
As against 173 products covered by the MIP, imposed in February 2016 (MIP I), the recent notification (MIP II) covers only 66 steel products. Notable exclusions in the list are hot rolled (HR) and cold rolled (CR) flat products with width of more than 600 mm and other alloy steel products such as boiler quality and high pressure steel.
Icra estimates that for HR flat products not covered under the MIP II scheme, domestic prices are currently trading at a discount of around USD 70/MT (14% of domestic HRC price) as compared to the landed cost of imported HRC from China.
"The safeguard duty (SDG) is providing some relief to the domestic HRC producers and is likely to keep the overall imports under check in the immediate term," Icra Senior VP, Co -head (Corporate Sector Ratings) Jayanta Roy said.
However, domestic CRC prices, which are not covered either under MIP II or SGD, are currently costlier by around USD 52/MT (9% of domestic CRC price) than the landed cost of Chinese CRC offers. Therefore, "CRC prices are likely to come under pressure in the coming days unless international prices harden, or the Central Government initiates a different protective measure for CRC," Roy added.
Amid an anaemic steel demand growth of 0.4 per cent in Q1 FY17, down from 4.6 per cent in FY16, any rise in imports would pose further challenges for the domestic steel players.
Hence, the outcome of recent investigations initiated by the Directorate General of anti-dumping and allied duties would remain a key monitorable for the financial health of the domestic steel industry, Icra said.
