#DNAInvestigation: Steel bends before narrow interests, faulty policies

After bombarding banks with non-performing assets (NPA), the steel industry is now blocking India’s growth story by pushing up domestic steel prices. Steel market data shows trade measures like anti-dumping duties have worked for the producer but not for the consumer as domestic steel prices jumped up by 5 -20 per cent in the last five months alone.

In India, which is the eleventh largest steel importer in the world, average domestic flat steel prices (HR coils and CR coils) showed an upward  trend and averaged 5-20% higher during the period April - August 2017 compared to the corresponding period a year ago. According to CARE Ratings, a risk analysis and rating agency, “The prices of long steel products (bars/rods) followed the trend similarly. The increase in steel prices on a year-on-year basis was witnessed across all markets”. 

Data clearly shows that after the anti-dumping duty was imposed, domestic steel prices surged to almost 20 per cent. GM Gupta, Managing Director of Global Engineers Ltd, who is himself a consumer of both carbon and stainless steel, told DNA: “Carbon steel and stainless steel prices both have gone up by about 15% to 20% since 2015 only due to anti-dumping duty imposed by the Government of India. It has mainly benefited a few private players, besides the main government-owned producers. The GST, which should have brought down the prices, has succeeded only marginally. The overall impact of steel prices is causing slowdown of industrial growth and hurting exports.”

Ideally, anti-dumping duty is a tool to protect the domestic producer from cheap supplier countries. But the steel sector in India is witnessing a strange scenario wherein domestic steel prices are shooting up even after imposition of anti-dumping duty, thereby making the protection mechanism redundant. Moreover, steel import has spiked by 15.9 per cent during April-August 2017, as per latest Joint Plant Committee (JPC) report. A market player, not wishing to be named, told DNA that anti-dumping duties help a handful of private steelmakers, not the wholesteel sector or economy.  These players “rigged the steel prices through cartelization” in the domestic market, he added.

Economists agree that by imposing anti-dumping duties “domestic companies were able to come back into the profit zone a s their sales increased in FY17, and they became competitive.” However, Madan Sabnavis, chief economist of CARE Ratings warned: “They (users) will have to pay higher prices… there’s no option. If companies gain, consumers will lose.”

Domestic steel price movement over the last year has reflected the impact of anti-dumping duties that were imposed on importers, including China. The government of India had imposed $478 (per ton) anti-dumping duty on hot rolled alloy in August 2016. Similarly, anti-dumping duty of $489 had been imposed on non-alloy coils (Hot Rolled Coil) and $561 on hot rolled steel.

Now consider the resultant price hikes. According to SteelMint, a specialised research agency on steel, Cold Rolled Coil (CRC) prices had jumped from Rs 40,000 per ton in the third quarter of 2016 to Rs 45,400 a ton by December in the same year. A similar spike has been seen in the case of HR coils, plates,sheets also.

The Narendra Modi government has planned for a huge investment in infrastructure and construction in FY 2017-18. However, the present trend of steel prices will cost the economy dearly. In India, almost 50 per cent steel is used in the construction sector, followed by mechanical machinery and automotive.

Since 2005, India’s status has been swinging between being a net steel importer and a net steel exporter. In March 2017, India registered 2.9 million metric tons surplus in steel export over the corresponding period in the last year — all because of trade measures like anti-dumping duty which protects debt-laden steel producers.

India’s steel production jumped by 7.4 per cent year-on-year in the first five months of 2017. In April 2017, domestic consumption came down as prices surged and steel export surged 142 per cent over the same month of last year. However, steel imports decreased by 23 per cent over the same period due to restrictive trade policies.

According to Global Steel Trade Monitor, India imports steel from more than 80 countries. Seven countries top the list in terms of volume. China, with 27 per cent of total imports, is the biggest source, followed by South Korea with 24 per cent and Japan with 17 per cent. For the last three years, domestic steel-makers have been complaining to the government against China’s dumping of steel at a low price. Steel-makers complained that high-cost lending and other factors like raw material and transportation are also distressing them. They demanded some trade measures against countries like China, so as to safeguard their businesses.

It is a fact that China has become a threat to the world steel market, but the level of consumption shows that the nation’s domestic demand is also very high. Steel market data of World Steel Association (2017) shows that in 2016 China produced 808 million tonnes crude steel and consumed 712 million tonnes, whereas India produced 96 million tonnes and consumed 95 million tonnes in the same year.

The steel producers lobby asked the government of India to protect them from China. In a knee-jerk response, the government took trade measures like MIP (Minimum Import Price) and imposition of anti-dumping duties in order “to curb dumping of steel products”. Steel ministry reports say that such trade measures “resulted in curbing unabated exports and unfair trade practices like predatory pricing by other countries”.

Since 2015, the government has issued seven orders of anti-dumping, four MIP, two basic customs duty and safeguard duty each. On September 22, 2017, acting on complaints by domestic steel producers, the Ministry of Commerce & Industry has initiated its latest anti-dumping “investigation” on imports of straight length bars & rods of alloy steel from China.

The government has imposed anti-dumping duty on 47 steel products, a measure recommended by the Directorate-General of Anti-Dumping and Allied Duties (DGAD), in consultation with the steel industry.

An expert committee report of NITI Ayog also presses the SOS button for steel producers. “Given the increased exports by China, South Korea, Japan, Russia etc there is a need to monitor the requisite anti-dumping and safeguard duties closely. A slew of measures has been taken by the Government to check steel imports, like imposition of a 20% safeguard duty (minus any existing anti-dumping duty) in September 2015 till September 2016 following which it will be reduced to 18% till March 2017, then brought down to 15% till September 2017 and eventually to 10% by March 2018.”