India Continues To Baffle With Rising Steel Output And Lagging Consumption

28 October 2016

The steel industry in India continues to be a baffling box of contradictions. While Indian steelmakers are ramping up newly installed capacities and increasing output, Indian consumers remain stubbornly unmoved about consuming all that local steelmakers are making.

That India would go on a mission to increase output seemed highly unlikely even a year ago, as an influx of low-priced steel imports was seen threatening the very survival of local mills. Indeed, major Indian steelmakers blamed “cheap imports” for their losses during the financial year that ended last March.

During the fiscal year 2014-2015, India’s hot rolled coil imports surged by 82% year-on-year to 2 million metric tons, according to the Joint Plant Committee. In 2015-2016, the rush of HRC imports continued with volumes rising 69% year-on-year to 3.4 million mt.

Anguished cries from the steelmakers and their backer banks eventually produced a response in New Delhi, where the finance ministry last February introduced an ingenious scheme to render foreign steel uncompetitive in the Indian market.

The so-called Minimum Import Price (MIP) scheme unveiled on February 5 saw very high prices set on 173 steel grades, below which imports would not be allowed in the country. The MIP for HRC 3mm and above was listed as $445/mt, while prevalent import offers from China were at $305/mt FOB and Japan and South Korea were at $315-320/mt FOB.

The MIP levels, supposedly arrived at by a team of Indian mill officials and bureaucrats after considering domestic costs of production, effectively raised the price of foreign steel with the aim of dissuading exporting mills and Indian importers from even thinking about shipping their steel to India.

The MIP was initially imposed for a limited period of six months until August 4, but after the Indian mills lobbied their government, the scheme’s life was extended twice – albeit applied to a reduced number of steel items – and will now lapse on December 5. HR products were among the steel grades excluded from this new list. However, following appeals made by Indian steelmakers, New Delhi ensured a further decline in HRC imports by launching an anti-dumping investigation on HR coils, sheets and plates.

On August 9, provisional anti-dumping duties were announced on imports of HR products from China, Japan, South Korea, Russia, Brazil and Indonesia for a period of six months. HRC from these countries if imported below $475/mt attracts the provisional duty.

Fear of penalties led to Indian importers shying away from foreign material. No surprise then that the latest JPC data for the April-September period shows a plunge in India’s HRC imports by 50% y-o-y to 948,660 mt. No surprise too that the removal of import competition encouraged local mills to raise domestic prices. Platts calculates that these have climbed by Rupees 5,000-6,000/mt since February.

All this would have brought local producers to a state of Nirvana had Indian steel consumers annoyingly not reduced their need for steel – regardless of origin. The country is yet to witness real growth in steel consumption so Indian mill efforts to raise prices and fill the gap vacated by foreign steel have proven largely unsuccessful.

Unluckily for Indian steelmakers, many are in the process of either commissioning newly-installed facilities or ramping them up. These had been under construction for years and delaying start-up until demand improves is apparently not an option.

India’s overall hot rolled coil output rose by 29% year-on-year to 14.6 million mt during April-September, JPC data shows. Consumption during this period remained at 6.73 million mt, while exports were only at 786,450 mt.

Indian steelmakers are counting on numerous infrastructure investments announced by New Delhi, translating to steel demand by the end of 2017.

Meanwhile, India’s potential as a rising market for steel has generated renewed interest in the country, with global steelmakers and traders displaying an eagerness to learn. The Platts Steel Markets Asia conference being held for the first time in India is creating a buzz, with more than 100 registered delegates and confirmations from eminent speakers from steel mills across the globe gathering in Mumbai in late November.


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