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| Hike excise duty on steel, but in phases |
| Kunal Bose / Feb 02, 2010, 01:53 IST |
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Steel Authority of India Limited (SAIL) chairman Sushil Roongta was in Beijing in October for induction in the hallowed committee of the World Steel Association now chaired by Lakshmi Mittal. Being an astute business diplomat, he made use of the visit to find out what China was going to do with its rapid steel capacity build up and production.
Finding that out was important for him as China with a share of 46.5 per cent of the world steel production in 2009 could swing the market to the disadvantage of other producing countries, including India. Roongta came back with the impression that China’s robust steel industry is primarily focused on meeting the rapidly expanding domestic requirements of steel triggered by unremitting infrastructure development and impressive growth of automobile and capital goods sectors. In fact, China’s net exports of steel were down last year.
Roongta piloting SAIL’s 10-million-tonnes saleable steel capacity expansion programme has reasons to be pleased with what he came to know about the Chinese stand. But the world at the same time is besieged by a blizzard of accusations by Western nations, including the US, that China is dumping steel. For instance, the US International Trade Commission unanimously decided that the import of subsidised tubular steel from China was causing damage to local steel makers.
China, which certainly is not a desperate exporter as yet, is not amused by trade restrictive stance of the US and European Union. In fact, Beijing in turn has lodged protests that US and Russian producers are dumping specialty steel in China and that American firms in particular receive “unfair government subsidies causing substantial harm to our manufacturers.”
In the midst of all these accusations and counter-accusations, some of our own steel makers have been heard complaining about India emerging on the Chinese radar for dumping of steel, specially hot-rolled (HR) coils.
To add grist to the rumour mill, an unnamed source in the government told Wall Street Journal that some Indian groups had signed significant import contracts in China. Our steel minister Virbhadra Singh remains dismissive of reports of dumping of steel by China and CIS. But he says at the same time that he will not be found wanting in taking corrective steps if dumping happens at some point.
The answer to why our imports of steel in the first eight months of this financial year were up 11 per cent to 4.59 million tonnes and our exports were down 39 per cent to 1.81 million tonnes lies in the firming up of demand while production was not ramped up to the expected level.
Roongta argues that the “improved outlook for steel is to be seen in the context of the world escaping from the deepest downturn of the post-war era aided by massive government sponsored stimulus packages. In the case of our own steel industry, its fortunes are linked primarily to the domestic market. I don’t think we should be losing our sleep on steel imports. At the same time, we should be watchful about dumping like any other country.”
Steel is a global commodity in the truest sense and as Roongta points out it is a constant battle for Indian steelmakers to bring down costs and improve quality so that they are not outpriced in their own turf, the tariff barrier being low. The point will be illustrated by the fact that HR coils delivered at Mumbai peaked at Rs 31,500 a tonne in September but fell to Rs 27,500 a tonne by December.
Indian prices came under pressure because of global price softening, particularly in China. The perception here that price falls in China had got much to do with growing surplus capacity and India could be one target market for exports of low pried steel was unnerving for the local trade. The appreciating Indian rupee making imports easier was yet another point of concern.
What finally gave courage to our steel makers to go for a spike of flat products prices in January were encouraging demand growth. So while domestic demand now growing at 8 per cent will be the principal arbiter of steel prices, we shall have to contend with Chinese moves and currency fluctuations all the time.
The confidence about demand and prices that Roongta and his peers are airing, however, needs to be tempered by reports emerging from Davos that global economic recovery may not be sustained as we go forward. The US and Europe are contending with heavy debts at government and household levels. The global hopes are, therefore, rightly pinned on emerging markets, particularly China and India.
As our steel industry is rebounding from a demand slump and price collapse, Roongta wants any winding down of the stimulus package to be done gradually. And in case the government wants to hike excise on steel that also should be done in phases.
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