October 08, 2008

Indian galvanizers at cross roads

Mr P Chidambaram’s announcement of imposition of export tax on various steel products has drawn very critical reactions, especially from the Indian cold rollers and galvanizers, who are exporting major share of their production.

Mr RV Sridhar senior VP marketing of Shree Precoated Steel Limited has expressed serious concerns both in short and long terms. Mr Sridhar outlined the Indian coated product scenario by saying that “India has overcapacity in coated products as installed capacity is around 6 million tonnes to 7 million tonnes and is growing with further investments in new capacity whereas domestic consumption is close to 2 million tonnes.”

Mr Sridhar said “Where will this excess capacity go? As domestic market is not large enough to absorb this excess capacity, it has to be exported. If we do not export or we are not able to export because of loss of competitiveness due to export duty, we would perforce have to close some of our lines, which would result in employment loss. So, the point is that we have to export.”

He made a comparison with the actions of Chinese government by saying that “Indian exports of value added coated product is in fledgling state as compared to China, both in volumes and variety. By imposition of 5% duty on coated products an unlevel playing field has been created for Indian steel makers vis a vis Chinese exporters. In fact even China has not put any export tax on galvanized and pre painted to encourage export of value added products. Indian government should take a clue from Chinese government policies.”

He said that “We have built market share and reputation painstakingly over a period of time and are we going to loose this because of the action of government? If we are to loose this market share can we regain it back in this highly competitive environment? We are surprised that the government of India instead of encouraging value added steel exports is disincentivizing it. We are surprised that commodities like iron ore have been spared form export tax, where as value add products have been taxed. The Chinese have exempted export duty on coated products like galvanized whereas export duty has been put on semis etc. Our government is strangely acting contrary to this ”

Mr Sridhar also said that “If this step of putting tax on galvanized steel is carried through, than all the exporters would have to face legal hurdles for existing orders under various stages of implementation. We would loose USD 60 per tonne to USD 70 per tonne If we were to recover from the customer, there would be legal issues. If we are to bear our bottom line would be hit by INR 2500.”