Steel imports to dip in FY17; prices to rise Rs 3,400/tn: ICRA

Indian steel imports will go down substantially in FY17 on the back of imposition of minimum import price (MIP) while domestic steel prices are likely to increase by Rs 2,700-3,400 per tonne in the coming months, rating agency ICRA said today.
"With the MIP covering almost the entire spectrum of steel products, which accounted for 87 per cent and 98 per cent of India's total steel imports in FY15 and April-November of FY16, its impact on curbing imports is likely to be more effective than import duty hikes or SGD," the agency said.
The government notified imposition of MIP on February 5 on 173 categories of flat and long steel products for a period of 6 months.

Prior to it, the government levied safeguard duty (SGD) of 20 per cent on hot-rolled coils (HRC) of width greater than 600 mm in September 2015, and hiked import duty on steel twice by 2.5 percentage points each in June and August 2015.
"These earlier measures however failed to have any material impact on reducing imports which, even after the imposition of SGD, continued to increase in Q3 FY16 as well, growing by 11.6 per cent year on year (yoy), and 3.13 per cent quarter on quarter (qoq)," ICRA said.
The MIP regime is expected to improve the margins and capacity utilisations of stronger domestic steel players, it said.

"However, the extent of margin improvement is unlikely to be sustained over the medium term, given the likely demand-supply mismatch in the domestic industry at current demand growth rates, expectation of weak steel prices in international markets and a limited validity period of six months initially for MIP," it added.

ICRA believes that a strong recovery of domestic demand conditions would be critical for a sustainable improvement in the credit profile of domestic steel players, it said, adding that domestic prices are expected to increase by Rs 2700-3400/MT in the coming months.
Domestic prices expected to increase by Rs 2700-3400/MT in the coming months.

"The MIP on HRC has been fixed in the range of USD 445-500/MT and for cold rolled coil (CRC), it is fixed at USD 560/MT. At current domestic prices, imported HRC, after the imposition of MIP, will be USD 130/MT more expensive than domestic exworks HRC price, thereby making imports unviable," it said.
Domestic HRC and CRC prices will therefore recover in the coming months.
"However, the extent of rise will not be as sharp as the current price differential between import offers and MIP, which is USD 130-200/MT. ICRA expects the quantum of increase to be much lower, in the range of USD 40-50/MT," it said.