Safeguards duty proposed on steel imports for 200 days with immediate effect

Industry officials see fall in global iron ore prices as key factor behind fall in steel majors' earnings; but users cry foul

Directorate general (safeguards) has recommended provisional safeguards duty of 20 per cent ad valorem for a period of 200 days on imports of hot-rolled flat products of non-alloy and other alloy steel in coils of a width of 600 mm or more into India with immediate effect.

“On the basis of analysis of the application filed by the domestic industry and the injury parameters, it is observed that the domestic industry is suffering serious injury/threat of serious injury in respect of market share, profits/losses, inventory, decline in domestic selling prices etc,” directorate general said on Wednesday.

There exists critical circumstances, where any delay in application for provisional safeguard measures would cause damage which would be difficult to repair, said Vinay Chhabra, the director general.

Analysts believe if a 20 per cent safeguards duty is imposed, it would lead to a hike of Rs 4,000 per tonne in prices. And, this increase should largely trickle down to the profits as well unless companies decided to compromise on some of it in order to garner higher volumes and market share. Directorate general (safeguards) had initiated a safeguards investigation on imports of hot rolled alloy and non-alloy flat steel coils on an application jointly filed by Essar Steel, JSW Steel and SAIL, accounting for more than 50 per cent of India’s total production of said products.

In a bid to protect the domestic steel industry, government has hiked the steel import duty twice — in August by 2.5 per cent and in June by another 2.5 per cent — taking the total import duty to 15 per cent from 10 per cent earlier.

Imposition of safeguards duty will bring free trade agreement (FTA) countries like Japan and Korea into the net, which was not the case earlier, when the import duty was hiked which meant more for countries such as China and Russia.

In FY15, the two biggest suppliers of steel to India were China and Korea. At $27 billion and $18 billion, respectively, the two countries accounted for almost 37 per cent of steel imports into India.

Meanwhile, industry officials were of the view, that the real issue for large steel producers is steep fall in global iron ore prices than higher imports as these companies earlier enjoyed competitive edge due to captive ore supplies.
 

"The key negative development for Indian steel producers was the steep fall in global iron ore prices, diluting their only competitive edge over global producers. Global iron ore prices fell 58% since Sep-13 to current levels of $57 per tonne," Prabhudas Lilladhar said in 'Case for Safeguard duty stands on weak ground'.

Globally, apart from iron ore, prices of coking coal have also declined 30%, while that of sea freight have slipped by $10-15.

"The correction in global iron ore prices cannot be used as rationale for introducing restrictive duties on imports as the domestic industry has benefitted in the past for a long period due to strong global iron ore prices," said Prabhudas Liladhar in its report.

"Domestic steel majors are charging 20% higher than imported steel. Why would consumers pay higher for same product?," said Nikunj Turakhia, director of Bombay Iron Merchants' Association. "It is the pricing model which these steel companies need to change," he added.