After four months of safeguard duty, the domestic steel
industry is grappling with the same problems and is, in fact, worse off, with prices having tumbled by around Rs 8,000 tonne.
According to producers, since September — when the safeguard duty
was imposed by the government — prices of hot rolled coil (a primary flat product) have dropped by Rs 7,500-8,000 per tonne, ex-plant.
The reason is simple: the Directorate General of Safeguards
arrived at a 20% safeguard duty
on imports of certain hot rolled coils based on a price of $477 a tonne, but transactions are now taking place at $340-$345 per tonne. For some Chinese imports, it's much lower at $280-$290 per tonne.
Domestic prices had to be aligned with import prices.
The duty was imposed by the government mid-September. “Two things happened post imposition of the provisional safeguard duty
— countries like Korea and China dropped hot rolled prices by over $100 per tonne thereby totally negating the levy of safeguard duty
and also circumvention through imports cold rolled full hard and of value added products like cold rolled and coated steel has increased,” Shivaramkrishnan, chief commercial officer, Essar Steel India, said.
The safeguard duty
was imposed on hot-rolled flat products of non-alloy and other alloy steel, in coils of a width of 600 mm or more.
Data shows that imports of hot rolled coil has been on a downtrend, but imports of other forms of hot rolled products are on the rise and so are of value added products like cold rolled. The industry, hence has been demanding that the safeguard duty
be extended to the entire value chain.
Plus, currency depreciation across countries has further negated the impact of the duty is completely negated. Since January 2014, the Euro has devalued by 25%, Japanese Yen by 14%, Russian Ruble by 121%, Chinese Yuan by 8% and Brazil Real by 70%.
Producers had expected the safeguard duty
to at least help improve capacity utilisation if not prices. But that hasn't happened either. The capacity utilisation in the sector
is back at below 80 %. “It is probably at 76%," a producer said. In the past two years, the industry had managed to improve capacity utilisation from a level of 75 % to 80 %.
"There is so much excess capacity the world over that exports are coming down. There is excess in the market to the tune of 10-12 million tonnes," explained the producer.
“The steel industry is precariously poised and what we need is a steel package from the government," Bhushan Steel director finance, Nitin Johri, said.
The Indian Steel Association has already made a representation to the government on this," another steel maker said.
The 'steel package' as mooted by the association has two parts: a one-year moratorium on payments of interest and principal amount and segregation of sustainable and balance debt. The sustainable debt will consist of long-term debt as well as working capital; the remaining part of the debt is being termed as balanced debt which the industry is proposing should be repaid over an extended period of time.
According to the presentation, as of September 2015, the steel sector
accounts for 21% of total number of corporate debt restructuring cases having an aggregate debt of Rs 56,000 crore. The sector's share in total stressed accounts of scheduled commercial banks is 10-11%.