Local demand may cushion steel makers from higher import tariffs



Source: THE ECONOMIC TIMES

Indian steelmakers are unlikely to feel the pinch of the recent double whammy inflicted on them by the safeguard investigation by European Commission and the US higher import tariffs, thanks largely to a spurt in the domestic demand for the alloy.

The ripple effect of the safeguard investigation on steel ordered by the European Commission has reduced Indian steel exports to Europe since March.

With steel demand picking up, Indian steel producers are replenishing inventories to meet rising local demand, giving them an option to mitigate the loss in exports to the US and the EU, as Indian steel loses its value proposition after the imposition of higher import levies.

The US, under the Trump administration startled the world in March by imposing a 25 per cent tariff on import of steel into the country, thus provoking the European Commission, that manages day to day business for the European Union, to order its own safeguard investigation on steel products to counter any dumping that may come from steel exporters to the US looking for new markets.

Since then, Indian steel exports to the EU have declined by 25 per cent according to industry experts. The investigation is supposed to pan over nine months from March but caution has already set in.

“Initiation of safeguard measures has slowed down exports to the EU as people have turned cautious in buying and selling,” said Jayant Acharya, director of commercial and marketing at JSW Steel.

“However, domestic demand has been buoyant which is why the industry has been re-orienting produce to feed the domestic demand,” Acharya added.

Essar Steel, which exports about 25,000 tonne steel per month to Europe, has also seen its exports to the EU decline by 10 per cent since the safeguard investigation, said Ranjan Dhar, chief marketing officer at Essar Steel, but said rising domestic demand has managed to offset the decline in exports.

Cushion Steel Makers

While US accounts for only 2 per cent of India’s steel exports with Indian exports to the US increasing by 16 per cent between 2011 and 2017 , according to data by European Commission, imports of iron and steel from India into the EU make up for 7.5 per cent of all products imported.

“With most steel producing countries adopting trade protection policies to support their domestic producers, an export dependent strategy is no more viable for Indian steel producers’ said Anjani Agrawal, Global Steel Leader, EY. “Indian producers will rather focus on value added products to substitute imports and also develop new applications to expand domestic demand” Agrawal said, adding that an expanding domestic market will yield better margins than competing with low cost producers like Russia, China etc. in the commodity part of their business.

Steel demand is on the rise powered by the growth in the automobile industry as well as infrastructure spending by the government feeding it. While the first few months of the current fiscal year have been good, monsoon is typically a lax season for steel with construction work coming to a halt. However, flat products that are used in automobiles and consumer durables will keep the steel mills running.

Reduction in exports was noticed for the last 4-5 months. According to Joint Plant Committee (JPC) the institution, which collects data on the Indian iron and steel industry, finished steel exports fell 30 per cent from 6.16 MT in January to about 4.30 MT in May this year. During the same period, consumption increased 9 per cent from 7.63 MT to 8.33 MT.

Source: THE ECONOMIC TIMES