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Strengthening Rupee might spell boom for imports into India
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Saturday, 06 Oct 2012

As the economy heaves a sigh of relief with slew of economic reforms giving jerk to the sagging credit worthiness of the nation there is certainly flip side to it. If a soaring rupee is providing fillip to the widening fiscal deficit by being boon for the importers it can be bane for the domestic manufacturers.

Indian steel industry is unlikely to feast in such an eventuality since the domestic mills have been struggling for the past 18 months maintain operational levels. Despite the tom toming of YoY 6.9% growth in consumption and about 4.2% growth in steel production the industry is not gullible to it.

An industry saddled with raw material shortage has been gasping for its existence during this period barely able to notch up even 2/3rd for its capacity. However during the INR dilution exports provided an outlet for flat producers to divert surplus inventory. In run-up Indian mills could take on the 2 tier Chinese mills in Europe and Middle East.

Memory is replete with Chinese massacre during which nearly 30% decline in domestic levels sent ripples to the Indian shores. Chinese HRC and plates became available aplenty for imports at unheard levels of USD 520-525 per tonne, CNF, Indian ports. Leaving the Black Sea cousin way behind grabbing the Indian pie domestic mills could barely save their skin under the shadow of depreciating INR. Nonetheless peripheral locations opted for imports whereas the hinterland acquiesced with domestic supplies. Amidst policy paralysis and scanty infrastructural projects domestic mills could barely keep their bottom lines afloat. Sluggish demand culminating in poor off take led to inventory pile up and discounts.

Remarkably imports jumped by 38.9 % (April-August) and exports declined 3.9% magnifying the parity disadvantage of domestic mills vis-à-vis overseas suppliers. Free Trade Agreement (FTA) coming into play with Japan and Korea reduced the import duty to 3% from 7.5% from these upping the ante on Indian mills in the worst of times.

It is learnt that Chinese mills continue runaway production despite spelling misery in domestic market. Eventually export being sole recourse the mills are unrelenting despite improved levels has the Indian mills scampering with fast appreciating INR swinging the parity balance away.

It is learnt that Chinese mills are still offering HRC at levels of USD 520 per tonne to USD 525 per tonne, whereas the Black sea mills are a distant second at USD 570 per tonne to USD 580 per tonne, both CNF , Mumbai. Moreover the high quality Japanese and Korean material is flooding making the Indian mills vulnerable.

CFR Price 525
Custom Duty 44
Port Expenses 20
Landed at Mumbai Port 589
Total landed 686 35547
Net of MODVAT 589 30505
1 USD = INR 51.83
Domestic levels of HRC at USD 35745 per tonne (basic) the parity gap is INR 5240 per tonne giving a distinct advantage to imports.

Despite a widespread expectation of price improvement after the Pitra Paksha we are pessimistic of any price hike in domestic levels of flat products for the above reasons. In fact reeling under the impact of arrival of earlier import bookings we envisage thickening of the cloud.

Source - Strategic Research Institute


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