Misery in the flat market seems unending despite nearly 2 years of stagnancy in price levels. Domestic mills have hit a roadblock which is proving to be insurmountable despite their rhetoric of revival in steel demand.
Caught in web of overproduction, slow demand, appreciating currency and surge in import the Indian mills have been gasping for survival as a matter of fact. Despite y o y growth in consumption by 4.8% in 9 months the bulk of the share has been taken by import having galloped by 31%. Picture is appalling with the steel capacity in India barely touching 80 million tonne against a plan of 124 million tonne. One of the main impediments in capacity expansion has been non availability of iron ore lumps as sponge iron has been the casualty after clampdown on illegal mining.
Basking in the shortage Indian mills had been upbeat about price buoyancy capitalization in the short term. More so with the import duty being hiked to 7.5% gave leverage to the domestic mills. Rug was pulled from underneath in no time with imports filling the void. Conforming to FTA as part of WTO regulation proved to be nemesis for the Indian mills. FTA became operational in June 2011 with Japan and 2009 with Korea. Under the agreement the import duty applicable is only 3% giving distinct edge to high quality Korean and Japanese flat products over Indian mills. Corollary increased capacity in these nations with low domestic demand has accentuated their need to become aggressive on export. Large presence of Japanese and Korean manufacturing units in India has helped drive the import under preferential duty.
Deluge of imports has been leveler for the domestic and international steel prices which stands eye to eye even without duty advantage. INR appreciation has certainly has provided traction. Implications have been more damaging than mere loss of market share by crippling the profitability of Indian mills in the worst of times.
|||In USD||IN INR|
|CFR Price||550|| |
|Custom Duty||20|| |
|Port Expenses||20|| |
|Landed at Mumbai Port||590|| |
|Net of MODVAT||590||31568|
In per tonne
1 USD = INR 53.55
With domestic HRC retail level at INR 36000 per tonne at Mumbai (excl taxes) Japanese and Korean material stand heads above not only in quality but price advantage of INR 4400 per tonne.
There seems to no respite for the flat steel producers unless freakish windfall in demand turns the tide. Since most of the Indian mills are vertically integrated and have the ability to use fines. The threat of domestic oversupply is therefore still real, and can serve to further pressure local steel prices these pressures cannot be offset by any regulatory steps by the government.
Source - Strategic Research Institute