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Steel: Another challenge - Views on News from Equitymaster
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  • Mar 6, 2002

    Steel: Another challenge

    In a move to protect the domestic steel industry, the US has finally slapped tariffs of up to 30% on a range of steel imports. This is likely to hit the Indian steel industry, which is already facing overcapacity.

    The new duties imposed by the US range from 8% to 30% and cover 10 steel product categories. It would be with effect form March 20, 2002 and includes steel slabs, hot rolled (HR) sheets, cold rolled (CR) sheets, HR bars and related products from a list of countries including Brazil, South Korea, Japan, Taiwan, Russia, Germany, Turkey, France, China, India, Australia and the Netherlands.

    The tariffs will be however, brought down over three years. Consequently, the 30% duty on flat steel, which accounts for about 60% of US imports, will fall to 24% in year two and 18% in year three. The US steel industry has been struggling since the last two years due to subdued demand and realizations, which triggered the higher import tariffs.

    Indian companies that are likely to be hit hardest are exporters of CR products and galvanized products / coils (GP/GC). This is due to the fact that HR coils were no longer competitive in the market following imposition of anti-dumping duty last year. Jindal Iron and Steel Company (Jisco) is one of the largest exporters of galvanized products. Around 60% of its 0.5 m tonnes produce is exported, out of which 15-18% is exported to the US. The company is likely to face challenging conditions and pressure on margins with imposition of these new tariffs.

    India exported around 1.4 million tonnes HRC to the US in 2001, which accounted for about 5% of the country’s total imports of 27.4 m tonnes. Indian steel exporters have already initiated measures to find new steel export markets. However, price realizations are likely to get impacted due to US decision to restrict imports. Japan, China, South Korea, Russia, Ukraine and Brazil are among the other nations that are likely to be hit badly. These countries could now flood the other markets including European Union with their excess steel products. The global steel industry is currently facing 200 m tonnes of overcapacity and it would be difficult to improve the demand supply mismatch due to downtrend in the industrial activity in most of the developed countries.

    Indian steel industry is already hit by the government’s decision to bring down the custom duty from 35% to the level of 20% by the year 2005. Peak rate of custom duty at 35% has been already reduced to 30% with effect from April 1, 2002. This could result in low priced finished steel products flowing into the Indian markets taking advantage of lower duties, which will increase price competition. Only players with established brands could manage to fight back competition. The Indian steel production has already recorded a marginal growth of 0.9% during the period April to January 2002 as against 12.1% growth for the comparable previous period. With slowing demand, lower exports and opening up of the market, steel producers are set to face tough times.



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