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BusinessLogr > Industry > Steel: falling imports dim the case for protection
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Steel: falling imports dim the case for protection

deep
Last updated: 2015/12/29 at 5:16 AM
deep Published December 29, 2015
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Consumption is increasing, output is not and imports are tapering, and may slip further—all indicating a supply squeeze in the making. Steel prices are likely to increase if this sustains and benefit steel companies, especially large integrated firms. Photo: AFP

The government appears convinced that the steel industry needs more protection. Safeguard duties on certain varieties of flat steel have already been imposed and more are in the pipeline. Reports of a floor price for imports are also doing the rounds. The impression conveyed is that the steel industry is sinking because of imports. But the numbers convey a somewhat different picture.

In April-September, finished steel imports had risen by 41%. That is high. The increase in September, however, was quite modest at 1.7%. The government had imposed quality certification requirements earlier in the fiscal. That could be a reason.

Weak demand was definitely not a cause. Consumption rose by 5% in September and has stepped up even further since then. Consumption growth shifted up to 6.6% in October and then even higher at 11.2% in November. Steel demand is flying high; that’s good news.

So, what if consumption is high, the menace of imports continues, right? Not quite. After September, the effect of the anti-dumping duty on hot rolled steel may have kicked in. October saw imports rise 34% but November’s numbers declined by 6.9%. Rising consumption and slowing/declining imports don’t match up.

So, what if demand is picking up and imports are slowing, output should be growing, too? In September, output declined 0.8%, October saw a 1.3% rise while it declined by 3.5% in November. The main reason is the declining production of mini and other steel producers, who contributed to 57% of finished steel output. Smaller firms appear to be cutting output as prices have declined.

Click here for enlarge

Larger firms may be joining in, too. JSW Steel Ltd has reported that its crude steel output declined 23.7% over a year ago and by 17.3% sequentially, in November. It said three blast furnaces are down for maintenance. Two of these will resume in early-January (these were earlier scheduled to restart in end-December) and the third in mid-February. That signals output will stay low. The next few months should reveal whether the trend is gaining ground.

What does this scenario entail? Consumption is increasing, output is not and imports are tapering, and may slip further. That’s a supply squeeze in the making. Steel prices are likely to increase if this sustains and benefit steel companies, especially large integrated firms. Domestic users will pay more for steel, while costs have declined elsewhere in the world. That does not bode well for industry competitiveness.

Even now, steel exports are down by 40.5% in April-November. That is a result of low steel prices globally, not just in India. Artificial measures to support prices may end up doing harm elsewhere. If there was no cap on steel prices when they shot through the roof, why should there be a floor when the situation has reversed? The depreciation in the rupee versus the dollar is anyway providing a natural hedge. With imports losing steam, the logic for steamrolling them further with more safeguards may be wearing thin.

[“source -livemint”]

 

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TAGGED: Steel: falling imports dim the case for protection
deep December 29, 2015
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