Steel sector: India has worries other than China

Rupee depreciation allays fears for now

The yuan devaluation has come at a time when India's external steel trade has reversed and imports are at a high.

According to a JP Morgan Asia Pacific Equity Research report, in 2003-04, India's steel imports were 1.5 million tonnes and exports 4.5 million tonnes. In 2014-15, India's steel imports were 9.3 million tonnes and exports 5.5 million tonnes. China's share was 3.6 million tonnes, up 232 per cent year on year. Effectively, imports are currently 15 per cent of monthly consumption, according to the report.

That scenario changed for the worse when China devalued the yuan recently. It meant that China, which was anyway exporting 10 million tonnes of steel a month to countries across the world, would become more competitive. At current import duty — India raised the import duty from 7.5 per cent to 10 per cent on flat steel and to 7.5 per cent from 5 per cent for long steel in June and another 2.5 per cent after the yuan devaluation--the landed price of Chinese hot rolled coil works out to Rs 25,000 a tonne versus the domestic hot rolled coil price of Rs 28,000 a tonne.

GROWING CONCERN

• India’s steel imports are currently 15% of monthly consumption, according to JP Morgan Asia Pacific Equity Research
   
• After yuan was devalued recently, it meant that China would become more competitive

This may have prompted the chairman and managing director of India's largest private sector steel producer, JSW Steel group, Sajjan Jindal to tweet recently: government must address the current crisis in steel industry and domestic steel must be promoted to boost the economy. Need of the hour for India's steel industry: trade remedies, monitoring of imports, fair pricing of steel vs import price parity.

“Most countries are putting up trade barriers with China. It is important for us to safeguard as well. The US and Europe are blocking extra quantity from China. If we don’t do something, additional surplus could find its way back to India,” explained Jayant Acharya, director, JSW Steel.

Uttam Galva Steels’ director, Ankit Miglani, however, feels the impact of the yuan devaluation could just about be offset with the depreciation of the rupee and the import duty hike.

Also, between October and December, many domestic steel producers are understood to be going in for maintenance shutdowns, which could restrict domestic supply.

Plus, while imports from China are a problem, the bigger issue is with the free trade agreements with Japan and South Korea.

“In the first quarter after the first import duty hike, China's share of Indian steel imports came down to 30 per cent from around 40 per cent,” said Jayanta Roy, senior vice-president, ICRA. But there was hardly any  impact on imports from Japan and South Korea.

In 2014-15, imports from Japan were 1.6 million tonnes, up 18 per cent year on year, and from South Korea 1.9 million tonnes, up 46 per cent year on year.

Does it mean that Indian steel is insulated from the impact of the yuan devaluation? Roy said, it would depend on China, whether it would focus on pushing volumes or go for higher margins. Pushing volumes may spell trouble for the global steel industry, including India.

In the years leading up to the Beijing Olympics, the steel cycle had been dominated by China. India’s steel super cycle led by China’s consumption lasted at least four years from 2004 to 2008.

Going ahead, while Chinese steel imports will have a big influence on the domestic industry, moves by countries like Japan and South Korea will also have an equally large bearing as their combined steel exports to India equal those of China.

The devaluation of the Chinese yuan versus the US dollar has sent shivers across the world, affecting commodities, stock prices as well as majority of currencies.