China exporting coke at below cost hurting Indian producers

What has for long remained a source of despair for the Indian steel industry is now taking a heavy toll on local merchant producers of metallurgical coke, used as a fuel and reducing agent in blast furnaces. Imports from China are playing spoilsport for both, but more so for met coke. Indian Steel Association president Chandra Shekhar Verma says the government should act swiftly by way of hiking import duty or imposing anti-dumping duty on evidence that the exporting nation is offering steel products or steel-making ingredients below production cost to rid itself of surpluses. Any prevarication on import duty revision puts local manufacturers at a disadvantage.

Indian steelmakers are at the receiving end due to progressive reduction in import duty on steel from South Korea and Japan, on the basis of comprehensive economic partnership agreements (CEPA) and tricks played by Chinese producers to avoid paying export duty, with Customs officials looking the other way. India is one of the countries experiencing steel price undercutting by China, which is on course to export a record volume, well in excess of 80 million tonnes (mt) in 2014. Because of relatively low prices at home, Chinese mills have turned aggressive sellers in the world market. Verma says this cannot but entangle China in trade conflicts with a number of importing countries. Because of the of market size here, the rapidly expanding Indian steel industry can perhaps fight off Chinese incursions but with some bruises.

In the case of metallurgical coke, however, unrestricted imports from China at prices well below cost of production in originating country and here have already claimed the viability of Indian merchant producers. Fully integrated steel groups like SAIL, Tata Steel and JSW have their own cokeries. But a host of small steelmakers, foundries and chemical units get supplies of coke from merchant producers, underlining their strategic importance. Now with their back to the wall, leading merchant met coke makers like Saurashtra Fuels and Gujarat NRE have opted for corporate debt restructuring (CDR). In all such cases, CDR has been sought due to extreme financial stress caused more by "external factors than internal causes," says a banker involved in restructuring exercise.

Industry officials are seeing "diabolical designs" in China principally targeting India for "dumping of met coke". Chinese export of met coke in the first nine months of 2014 more than doubled year on year to 5.78 mt, India alone received a-third of that. In the global seaborne market for met coke, China origin products became a dominant feature since January 2013, when the country dispensed with a 40 per cent export duty and quota restrictions. No doubt frowning by World Trade Organization that there should not be export restrictions on industrial materials had a bearing on Beijing dropping the tax. Equally important, it was concerned about flat domestic demand when there was large overcapacity in met coke. This is because Chinese steel production till October at 685.5 mt showed a growth of only 2.2 per cent.

Chinese met coke makers needed removal of export tax to be able to sell their products in the world market leading to better capacity use. But their strategy providing for pricing met coke at a discount of at least $30 a tonne to production cost of $220 a tonne based on ruling coking coal fob price of $113 a tonne is sounding death knell for Indian producers, says Gujarat NRE chairman Arun Jagatramka. What helps Chinese industry to keep production cost low is the "benefit of more efficient inland port logistics" than available here. "We are telling New Delhi that while production cost here is a lot higher at $240 a tonne than in China, the Indian market is receiving large quantities of met coke from its northern neighbour at ridiculously low prices," says Jagatramka.

In many ways, present dumping of met coke is a repeat of what happened in 1997-98 when "artificially low-priced Chinese material" flooded the market here and in the process a good number of local cokeries went out of business. The industry would have suffered more but for imposition of anti-dumping duty in October 1998. Domestic met coke users then opposing anti-dumping duty had a shock waiting for them as in a few years Chinese exporters raised the price from $80 a tonne to up to $480. "Once the 12 mt capacity domestic industry is brought down to its knees, Chinese price shock will be there once again," warns Jagatramka.

COKE FIGHT

• The Indian Steel Association says the government should hike import duty or impose anti-dumping duty
   
• Any prevarication on import duty revision puts local manufacturers at a disadvantage
   
• Indian steelmakers are at the receiving end due to reduction in import duty on steel from South Korea and Japan