High domestic steel prices may trigger import rush

Steel in India is more expensive compared to spot market prices in most countries in CIS

In a setback to local producers, the prices of imported steel have fallen about 20 per cent this month, as China has dumped its produce here due to demand falling in that country. By contrast, elevated iron ore prices have kept steel on a firm footing in Indian markets.

Hot rolled coil (HRC) is being quoted at $503 a tonne in China. After the transportation cost of $17 a tonne is factored in, its landed cost in India works out to $520 a tonne, $47 lower than the prevailing price of $567 a tonne in India. Through the past five-six months, HRC import prices stood at $535-545/ tonne.

Steel in India is more expensive compared to spot market prices in most countries in the Commonwealth of Independent States (CIS). Rebar is quoted at $583 a tonne in India, compared with $433/tonne in China and $538/tonne in CIS countries.

“On a landed-cost basis, Chinese long products are now cheaper by about $60 a tonne. Therefore, institutional consumers have already started importing rebar. Long product imports saw a sharp surge in August, and this is likely to continue due to further weakness in Chinese long-product prices,” said Sanjay Jain, analyst with Motilal Oswal Securities.

An official in the steel ministry said, “Between April and August, India’s steel imports rose 22-23 per cent. India is closely monitoring the situation.” For the April-May period, steel import stood at 1.66 million tonnes, according to ministry data.

The official added steel import from Japan, China and South Korea, under the free trade agreements (FTAs) with these countries, had risen. According to sources, steel import from Japan rose to 527,000 tonnes in April-August, a rise of 64 per cent compared to the corresponding period last year. During the same period, import from South Korea jumped 28 per cent to 657,000 tonnes.

An industry official said, “The surge in imports, coupled with low industrial growth, is impacting Indian steel companies. The lower import duty regime under the FTA is resulting in lower landed steel prices.”

About 70 per cent of the imports are through FTAs.

Shivramkrishnan, chief commercial officer of Essar Steel, says, “Industry is sandwiched between higher input cost of iron ore/fines, availability issues in Odisha and other states due to Supreme Court orders and cheap steel imports. It is important that the government reviews the raw material availability, whether for iron ore or gas, and ensure the requirement of the domestic steel sector is fully met, especially in the case of iron ore/fines linked to international prices. The government also needs to quickly review the FTA and its impact on core sectors of the economy, as well as the damage it could do in the longer run.”

The steel sector has urged the government to take steel out of the FTA list, restrict imports from Japan and South Korea, and impose anti-dumping duty to protect domestic steel mills from Chinese dumping.

Motilal Oswal Securities’ Jain said, “Indian steel mills are lobbying with the steel ministry for anti-dumping duty on Chinese imports to protect the domestic market. It remains to be seen whether the government will move to protect the domestic steel sector.”

Raw material prices continue to remain high, primarily due to a slowdown in steel demand in China and surging supplies. Global coal prices are trading at about $70 a tonne, against about $100 a tonne two years ago. Coking coal prices have declined 21 per cent since December 2013, owing to higher supplies from major Australian miners such as BHP Billiton, and lower demand from China.

Iron ore prices have declined 40 per cent since December 2013

The fall in steel prices has brought the margins of integrated steel producers under pressure. As the royalty on mineral excavation has been raised to 15 per cent from five per cent earlier, the prevailing premia over imports would lead to dumping from foreign markets.