Steel imports from South Korea and Japan fill up the Chinese gap

The Indian steel industry has asked for a safeguard duty on steel imports

While the domestic steel demand has shrunk, there has been an increase in steel import, especially from South Korea. There has, however, been a reduction in imports from China, but this has been compensated by increased imports from South Korea and Japan, which have strengthened their grip on the Indian steel market. 

The Indian domestic steel industry has asked for safeguard duty on steel imports, even as the issue of imports came up for extensive discussion between Union Commerce Minister Piyush Goyal and Steel Minister Dharmendra Pradhan last week.  

Domestic steel consumption growth eased to 7.5 per cent in 2018-19 (FY19), from 7.9 per cent in 2017-18 (FY18) due to liquidity- and fuel price-related headwinds faced by the auto sector during the second half (H2). 

Demand growth moderated further to 6.4 per cent in April 2019 and is likely to remain lower than the FY19 levels in the first quarter (Q1) ending June 2019, due to continued weakness in the auto sector and reduced construction-related activities during the general election period. This, coupled with elevated coking coal prices, is likely to affect the financial performance of domestic steelmakers in Q1, said a recent Icra report. 

In FY19, India’s imports from Korea increased to $2.7 billion, from $2.3 billion in the previous year. Similarly, steel imports from Japan increased to $1.3 billion, from $1.1 billion in FY18. Imports from China, however, fell to $1.4 billion in FY19, from $1.6 billion.  

Provisional figures for April 2019 showed Japan and South Korea supplied 57 per cent of India’s 630,000 tonnes of steel imports, compared with about 45 per cent in the same month a year ago. 

Officials said free trade agreements with South Korea and Japan are leading to an increase in imports. Steel imports from Japan in April jumped 27 per cent to 116,000 tonnes, from the same month a year ago, while Korean imports rose 15 per cent to 245,000 tonnes. 

With the US and Europe clamping down on steel imports from the two countries, they are looking to further increase imports into India. These imports are primarily high-value steel used for specialised purposes like automobiles. 

According to the Icra report, given that domestic steel hot-rolled coil prices have weakened sequentially from Rs 41,250 per million tonnes (mt) in the fourth quarter of FY19 to Rs 40,500 per mt in Q1 of 2019-20 (FY20), elevated coking coal prices are likely to keep the profitability of domestic blast furnace operators under pressure in the current quarter.  

Jayanta Roy, senior vice-president & group head, corporate sector ratings, Icra, said the softening demand and a 34 per cent dip in steel exports kept the domestic crude steel production growth low at 3.3 per cent in FY19. 

While steel imports grew 4.7 per cent in FY19 and kept India a net importer of steel during that year, imports are expected to go down in the coming months, as the domestic hot-rolled coil prices are currently trading at a 6 per cent discount to imported offers. 

Despite expectations of reduced imports, domestic steel production growth is likely to remain modest in the second quarter of FY20 due to the seasonal weakness in demand and would recover in H2FY20, mirroring steel consumption trends.