Critical Issues For The Indian Steel Industry MIP And Rising Prices

25 October 2016

A few aspects of the growth story of the Indian steel industry is currently being discussed or talked about in various forums. The opinions expressed on these issues are varying in nature but interesting enough to be considered in some detail

First, has the MIP benefited the industry? And if the answer is yes, by how many more months should it continue? After the imposition of the MIP, the level of imports at 3.95 mt in H1 of the current financial year is 36% lower than last year’s. The share of low-priced imports from China, Japan, Korea and Russia, which was 76% in FY16, however, currently stands at 74% in H1 of FY17. The MIP has benefited the domestic industry in getting a higher price for their products (market realisation increased by 15% in the last eight months) and has expanded the market size for them, which were so long captured by low-priced imports.

The MIP for the original 173 items was effective for six months from February 2016 to August 2016, cut down to 66 items and extended for two months to October 2016 and for another two months up to December 2016. Meanwhile, the preliminary findings for the imposition of antidumping duty on HRC/S/plates and CR were strong reasons for the withdrawal of the MIP on these categories, and hence, the reduction to 66 items. The preliminary affirmative findings of injury on account of dumped imports of wire rods and hence AD duty would enable the government to prune the list further in December 2016.

Also, the current petitions on galvanised/coated sheets, if found positive, would further cut down the number of items. It is interesting to see that India has imported 0.13 mt, 0.19 mt and 0.19 mt of plain rounds, TMT bars and wire rods, respectively, during H1 of the current year, and apparently, there is no dearth of indigenous availability of these categories in almost all grades and other dimensions to justify these imports, unless they are a necessary part of project imports.

The question is, to what extent the MIP is injurious to the interest of user segments. As imports under advance licences are outside the purview of the MIP, the real concern of the user segments is not significant as international prices (HRC) between February 2016 and October 2016 has already moved up by 27% in the minimum, thereby substantially neutralising the advantage of low-priced imports.

The second issue concerns the sustainability of the current phase of rising steel prices. After temporarily dipping for a limited period in May-July 2016, global steel prices are on the rise. Notwithstanding a repeated warning for a fall in Chinese output, crude steel production in China during the first nine months of the current year at 601.4 mt is 0.4% higher than in the previous year. China has already eliminated around 80% of the planned 45-mt reduction in crude steel production in 2016 and is taking up a series of fiscal, monetary and industrial measures to provide relief to the affected units and thus reduce the adverse social impact of closing down capacities.

The EU production at 127.4 mt is 4.8% lower with US production lower by 1.3%. The absence of a drastic cut in steel production by China is supported by their more than 9.1% growth in imports of iron ore at 762.6 mt during January-September 2016. This has lent support to global prices of iron ore as well as coking coal.

Although China has exported 85.1 mt of steel in the first nine months at a 2.4% higher rate than in the previous year, the higher export prices (nearly 51% more during December 2015 and October 2016) would enable the Chinese producers to improve their profitability.

The sudden rise in coking coal prices due to adverse impact of logistic factors (both at Australian and Chinese mines) from $92.5 per tonne for Australia to the current spot prices of $239 per tonne may not enable India and other coal importers to settle for a price not lower than $190-220 per tonne for Q3/Q4. This necessitates another good reason for not reducing the steel prices in the coming months.


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