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Steel sector grapples with high costs, dumping duties - Views on News from Equitymaster
 
 
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  • Dec 27, 1999

    Steel sector grapples with high costs, dumping duties

    According to newspaper reports, the domestic alloy steel makers are being forced to effect a price hike in view of the rise in the cost of nickel, a raw material. In another unrelated news, the European Commission (EC) has decided to slap anti dumping and anti subsidy duties on Indian exports of hot rolled steel coils (HRCs).

    While alloy steel makers are expected to hike prices by Rs 1,700 per tonne, stainless steel manufacturers are contemplating a 5- 8% hike. Although one of the reasons for effecting the price hike is the rise in costs, the improvement in domestic demand has also played a key role in this decision. Whether the market will actually be able to absorb the hike is yet to be seen. In case there is a roll back of the hike, margins of steel companies would be adversely affected.

    The decision by the EC to impose anti dumping and anti subsidy duties on Indian exports of HRCs does not augur well. The EC has stated that it will levy duties ranging from 6% to 23% on 25 Indian companies.

    The domestic steel market has witnessed a pick up in volumes although the prices have remained stagnant. This was mainly due to the dumping of steel by international majors in the domestic markets. The Indian steel industry had been able to mitigate its plight in the domestic market by tapping the lucrative export market. With this latest development, the Indian steel industry will be compelled to either look for new export markets or restrain themselves to the domestic market. In the latter case, the fallout could be still lower price realisations that could severely hit margins of steel companies.

    Although the Indian government had imposed floor rates to prevent large-scale imports into the country, they have been relatively ineffective. Infact in many instances steel continues to be imported at rates below the stipulated floor rates. What is of concern to steel manufacturers however is the government's decision to do away with floor rates in the coming year. With the export situation looking grim and the domestic markets yet to pick up momentum, this move could jeopardise the profitability of the sector in the coming year.

     

     

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