Safeguard duty may provide temporary relief to steel sector

The proposed 20 per cent safeguard duty on imported steel is expected to provide relief for the steel sector which is struggling due to cheap imports from China and the countries with which India has free trade agreements, says India Ratings and Research (Ind-Ra).
The proposed duty of 20 per cent would be applicable on import of hot-rolled flat products of non-alloy and other alloy steel with a width of 600mm or above.
The safeguard duty on hot-rolled coils (HRC) would benefit the integrated steel producers (ISPs) only in the short-term as it is likely to be applicable for only 200 days.

Ind-Ra estimates that the landed price of HRC imported from China will be higher than the domestic steel prices by Rs 2,000 per tonne.
This will be in stark contrast to the present situation where imported HRC is cheaper by Rs 2,000 per tonne than domestic HRC. This will also provide headroom to domestic steel producers to increase their prices and volumes, provided Chinese players do not reduce their prices further.
The safeguard duty is superior to the import duty as it is applicable to all nations unlike the import duty which excludes countries falling under free trade agreements.

The higher safeguard duty would benefit the ISPs, but negatively impact the companies involved in cold rolling and annealing of HR coils. However, the players could circumvent this by importing HRC with some value addition, Ind-Ra said.

HRC has been one of the major products produced domestically and its import has hurt the domestic steel industry. Out of the total steel imports of 9.3 MT in 2014-15, HRC accounted for nearly 25 per cent.
The country's import of iron and steel rose 58 per cent during April-June 2015. The sector's contribution to stressed advances stood at 10.2 per cent of the total advances at end-December 2014 and is among the top five sectors with stressed loans in the system.
Steel imports have increased primarily from China, Korea and Japan. While the imposition of import duty of 12.5 per cent applies to China, it does not apply to Korea and Japan, with which India has bilateral free trade pacts.

Flat steel is used in various industries such as automobiles and consumer durables and the safeguard duty would mean higher costs for the end-users of these products. Also the 200-day duty will not solve all the problems the industry is facing, but will provide temporary relief, Ind-Ra added.