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US blocks Indian steel - Views on News from Equitymaster
 
 
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  • Sep 28, 2001

    US blocks Indian steel

    Imposition of antidumping duties by US on Indian steel manufacturers has taken a toll on the future prospects of the steel industry. This move is likely to result in closure of the US markets for Indian steel manufacturers for the next five years (stipulated period for which new levies will apply).

    Apart from the antidumping duties, the US has also imposed countervailing duties (CVD) to counter the subsidies these companies receive from the Indian government.

    From the following table it seems that excluding Ispat, all other companies have gained in terms of reduction in duty. However, the marginal reduction in duty would do little to boost exports. In FY01, India exported 1 m tonnes of hot roll coil (HRC) to US with realization of US$ 265 m. This is likely to come down significantly in the current year.

    Antidumping duties imposed by US
    Company Preliminary Final CVD
    Tisco 34.8% 33.2% 9%
    Essar Steel 34.6% 29.4% 8%
    Ispat 39.6% 43.0% 31%
    JVSL 34.8% 33.2% 16%
    SAIL 34.8% 33.2% 17%

    Apart from India, America has imposed the levies against countries including China, Kazakhstan, Indonesia, Thailand, Romania, Ukraine and Netherlands. As the US has blocked the door for cheap imports from these countries the same could find its way to India. However, if the Indian government increases the import duty on steel products, domestic steel industry could be protected to an extent. But since India has already agreed to the WTO norms, it might become difficult for the government to increase duties.

    Overcapacity in the domestic markets along with the imposition of anti-dumping duties by the developed countries has worsened matters. Even though the domestic steel manufacturers are exploring opportunities in other markets including China, in the near term the scenario looks discouraging. Chinese markets are facing overcapacity problems and South East Asian countries continue to face a slowdown.

    When the global steel industry is facing sluggish economic conditions it would be difficult even for Tisco, which is considered as the lowest cost producer of steel, to beat the heat. The company has already cut back production of cold rolled steel to 70,000 tones per month as against its capacity of 100,000 tonnes per month. Subdued demand in the domestic industry coupled with sliding exports could result in the company reporting loss for the September quarter.

    This is already reflected from the company’s valuations on the bourses. Tisco’s stock has already hit its new 52-week low. At the current market price of Rs 69, Tisco is trading at a P/E of 5x FY02 projected earnings. The company’s FY02 profits (excluding the impact of deferred taxation) are expected to dip by 10%.

     

     

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