The decision by a majority of U.K. citizens to leave the European Union (E.U.) has injected a note of worry in business circles in faraway India, one of Great Britain’s former colonies and a nation that trades more than India Pale Ale with it.
Especially worried are India’s steel and automobile sectors. The anxiety stems from the fact that the U.K. was always seen as an attractive business entry point to the rest of the E.U. It’s favorable tax regime was the other positive factor that encouraged trade between the two nations.
Tata Steel’s Conundrum
But now, with the referendum over, trade bodies such as the Federation of Indian Chambers of Commerce and Industry (FICCI) feel that Brexit could create a lot of uncertainty for India, Inc. After all, Indian companies are the third-largest source of foreign direct investment in the U.K.
Tata’s steel plant at Port Talbot in South Wales, U.K., could close if Tata Steel can’t find a buyer. Source: Adobe Stock/Petert2
Take Tata Steel for example, the company’s steel products enjoyed free trade with other European countries because Britain was part of the E.U. Now, depending on what type of deal is struck with its former E.U. cohorts, that status will likely be gone, leaving Tata Steel negatively impacted. Not only will it hurt the division’s exports, but it also complicates proposed sale of its U.K. plants. Read more
According to a recent report by credit rating agency ICRA, India’s iron ore prices are not likely to recover in the near future. On the other hand, steel companies would benefit from this development in the short term. They were likely to enjoy “better profitability” due to improved steel prices in the current year, supported by imposition of minimum import price (MIP) by the government.
Production Up, Prices Down
India’s iron ore production in 2015-16 was at 155 million metric tons, registering an annual growth rate of 23%, ICRA said in a statement. Much of the incremental production in iron ore was because of stepped up mining in the Indian state of Odisha. In the current fiscal, ICRA said, India’s iron ore output could be somewhere in the range of 170-175 mmt.
The Federation of Indian Mineral Industries (FIMI), on the other hand, was of the view though that the Indian iron ore export mining industry needed tax relief to compete internationally after an absence of approximately four years when mining was largely banned in many Indian states.
Speaking at an iron ore conference in Singapore recently, R.K. Sharma, Secretary-general of FIMI said it would “challenging” to restart some of the mines after they have been shuttered for four years.
According to ICRA Corporate Sector Ratings Senior VP Jayanta Roy, because of the substantial iron ore inventory levels at existing mines and the fact that India’s iron ore production was slated to increase further, domestic iron ore prices are unlikely to recover meaningfully in the near term, which benefits local steel mills.
Post minimum-import-price, Indian hot-rolled coil (HRC) prices have seen a sharp increase of about 25% from the lows reached in February 2016, according to ICRA’s quarterly research report on the steel industry. Industry players saw additional gains due to an increase in sales volumes, as imports were likely to reduce in the current year.
The MIP is scheduled to expire in the second quarter of the India’s fiscal year (April 1 to March 31), but according to analysts, the present level of international prices and the extension of a safeguard duty by the Indian Government to March 2018, could continue to boost prices and prospects for Indian steel producers.
“The World Silver Survey 2016,” an annual report published byThe Silver Institute, said Asia’s silver mine output went up last year by 1% to 165.1 million ounces, following a 3% drop in 2014. A major part of the decrease originated from lead and zinc production sources with a lesser drop from primary silver mines. The bulk of the loss could be traced to mines in China and Kazakhstan.
For India, silver production showed a “notable rise” last year, of over two-fifths, or by 3.6 million ounces, to reach a record production total for the country of 12.0 million ounces.
Indian Silver Production
Higher ore volumes and grades from the country’s Sindesar Khurd mine in the second half of the year were behind much of the gain, amid a period of otherwise lower output as the company’s flagship Rampura Agucha moved from open pit to underground mining.
Total physical demand in 2015 saw a 3% increase in 2015, driven by higher retail investment, jewelry and silverware fabrication and solar and ethylene oxide catalyst demand.
Also, last year, silver retail investment and jewelry fabrication hit a record high. Jewelry fabrication, for example, increased for the third consecutive year and hit a fresh record high of 226.5 millions ounces. Again, strong growth in Indian and North American fabrication offset a near one-third drop in Chinese fabrication.
The silver market, according to the report, realized an annual physical deficit for the third consecutive year in 2015. The market’s deficit of 129.8 million ounces was more than 60% larger than the previous year’s deficit of 78.6 million ounces and the third largest on record, the survey recorded. Silver prices averaged $15.68/oz, down 17.8% from 2014, the fourth consecutive annual drop. Prices were pushed lower by investor expectations for an interest rate hike in the United States and a weakening Chinese economy.
Silver bullion trade in 2015 continued to be dominated by flows to India, where total imports reached an all-time high of 256.0 million ounces, rising by 16% from the 2014 level.
In India, scrap supply declined for a third consecutive year falling by 14% from 2014 to 2.5 million ounces, the lowest in more than 15 years. This decline was largely attributed to three consecutive years of falls in annual average prices, which last year had dropped by 14%.
Physical Bar Demand
Compared to the previous year, global physical bar investment rose to a record 158.2 million ounces in 2015, a 24% surge. The declining silver price drove bargain buying higher, particularly in India and the U.S., where bar consumption rose 31% and 25%, respectively, said the survey. What also gave a boost to silver bar demand was a strong demand for official coins and the corresponding shortfalls of coin supply, as investors sought an alternative to satiate investment demand.
Last year, physical bar investments in India increased by 31% to 82.5 million ounces, the highest since 2008. In India, a large part of this form of investment comes from short term hoarding to benefit from lower prices or to profit from a differential in the spot and futures market. This type of build-up of positions eventually returns to the market as disinvestment when the price rallies.
Such disinvestment during price rallies resulted in local premiums (the price at which the metal is sold by a domestic trader after buying from importing agency) falling to a low of 2 cents and at times being forced to sell at discount, as against a lower threshold of 3 cents observed in 2014.
Turnover on the Multi-Commodity Exchange of India (MCX) more than halved in 2014 as a result of the commodities transaction tax, which was introduced in July 2013. The marginal 1% year-on-year decrease in 2015, to a nominal 7,705 million ounces, might indicate that investors have gradually adjusted to the change.
The survey said in the first quarter of 2016, although safe haven demand was the primary driver, the relatively stronger market fundamentals acted as a spring board for silver prices, given the continued higher demand for coins and concern around mine supply reduction.
The report predicted that silver mine production would continue to suffer losses in 2016 as a consequence of supply cuts in lead and zinc production, in combination with lower forecast output from both the primary silver and gold industries.
While India marches on to become a $10 trillion economy, and recently posted a gross domestic product growth figure of 7.6% in 2016, the Indian government now plans to create a separate fund, the country’s first-ever sovereign wealth fund for various sectors that will attempt to address capital requirements of domestic steel companies.
No doubt, everybody hopes the steel sector will play a pivotal role in India’s growth story, said Aruna Sundararajan, Secretary of India’s Ministry of Steel, in a session at the conference Championing Manufacturing in India – Excellence, Growth and Employment. Read more
The Steel Authority of India Ltd. and JSW Steel & Essar Steel India filed a complaint with India’s Directorate General of Anti-Dumping and Allied Duties, seeking an anti-dumping investigation as well as the imposition of tariffs on steel imports from six countries. Soon thereafter, the DGAD said it had prima facie evidence of dumping of steel originating from China, Japan, Russia, Korea, Brazil and Indonesia.
Chinese Production vs. Indian Production
China is the world’s biggest steel producer, accounting for around 822 million tons a year. Driven largely by a fast track economy in the past quarter century, China’s steel output has grown by more than 12 times it’s size in the ’80s. By comparison, the EU’s output fell by 12% while U.S. output has remained flat. Of late, China has found itself in the midst of dumping controversies involving many countries it sends exports to, including the U.S., the European Union and Australia.
Chinese steel production is the target of India’s anti-dumping probe. Source: Adobe Stock/zjk.
The Indian probe’s purpose is to establish the “existence, degree and effect of dumping” by the six nations. If found to be true, it will then recommend a minimum amount of anti-dumping duties. The probe covers hot-rolled flat products of alloy or non-alloy steel in coils, as well as hot-rolled flat products of alloy or non-alloy steel not in coils. Most of these products are used in the the automotive, oil and gas line pipes/exploration, cold-rolling, pipe and tube manufacturing industries.
Trade between China and India has been growing but individually, the two are polar opposites so far as global exports are concerned. India’s exports account for just 1.7% of world trade, compared with nearly 12% for China’s. China exported 112 million metric tons of steel in 2015, which was 25% more than India’s total production of steel. India produced 92 mmt of steel in its 2014-15 fiscal year, while it imported over 9.32 mmt of steel, of which, an estimated 30% came from China.
Meanwhile, on the other side of the globe in Belgium, international steel producing countries, too, called for urgent action to curb overproduction.
A joint statement from the U.S., Canada, the E.U., Japan, Mexico, South Korea, Switzerland and Turkey, called calls for “ongoing international dialogue” to remove “market-distorting policies.”
But China rejected suggestions that it subsidized its loss-making steel companies.
India has often used anti-dumping duties and also imposed safeguard duties due to such import surges.
A few days ago, the Indian government extended the safeguard duty on steel imports until March 2018, after having first imposed them in September 2015. There will be no safeguard duties on steel imported at or above the minimum import price (MIP) stipulated by the government.
Anti-Dumping or Countervailing Duties?
Both, anti-dumping and countervailing duties try to rectify the same issue: low-priced imports. But the difference between the two is the real cause of the low price.
Anti-dumping duties are used to tackle “dumping,” a legal definition for imports whose price is lower than their production cost. An exporter sets steel prices lower than production costs and floods other markets with such steel products. If a Chinese producer spends $120 per mt to make cold-rolled steel, and then sells it in the Indian market for $90 mt, while his Indian counterparts are selling their produce for $110, then these imports are based on a predatory pricing model that is either indirectly subsidized in the originating country, or takes advantage of a lower-valued currency and production costs back home.
On the other hand, countervailing duties seek to counter low prices that are an outcome of direct subsidies. The Chinese government, like some others, offers subsidies on exports in the form of tax breaks. As a result, exporters can offer lower prices than domestic producers. Countervailing duties level the playing field by negating the advantage of direct government sponsorship by increasing import tariffs to level the playing field.
Such duties are allowed by the World Trade Organization under the General Agreement on Trade and Tariffs (GATT) but only if dumping is established. Anti-dumping duties have to be removed if the margin between the domestic price and imported price goes below 2%, or when the imports of product from a country account for less than 3% of total imports of the product.
Also, the WTO says safeguard and anti-dumping duties cannot be country specific. So, if India or the U.S. imposes duties on imports from China, the latter can also impose duties on imports from those two nations.
This is what China is now pointing out to India. A few days ago, the world’s top steel maker asked India not to resort to “trade protection measures” and to “strictly follow” WTO rules while investigating cases of dumping by Chinese iron and steel exporters. Steel overcapacity is a worldwide problem which requires a joint effort from all countries, an unnamed Chinese official was quoted as saying by the official Xinhua news agency.
Of the 47 participating countries, the U.S. was among the event’s largest international exhibitors, clearly underlining the importance of the region to the American defense and security business. This was the first time that DefExpo, India’s most prominent defense and security trade event, was held outside the capital, New Delhi.
Who Makes What? Or Asks For it?
The event saw a bit of “Make in India” mingling with “Ask America First.” The U.S. International Pavilion saw potential buyers looking for ways to meet a critical mass of U.S. suppliers, and an onsite business hub for American exhibitors looking to maximize their exposure and impact at the event.
The Polaris DAGOR was designed for U.S. SOCOM (Special Operations Command) and U.S. Special Operations Forces. Source: Polaris.
“When U.S. companies commit to exhibit at DefExpo, they’re saying they believe in the power of this event to attract real business prospects and customers. The global interest in this show speaks for itself,” said Kallman Worldwide President and CEO Tom Kallman, in a media release. Kallman Worldwide, Inc., was the designated U.S. Representative of the show, in coordination with numerous U.S. government agencies
“The United States is the world’s biggest aerospace and defense supplier, but that’s no guarantee that buyers will look to work with American companies over others,” Kallman said. We want every visitor to ‘Ask America first’ at DefExpo, and to be assured that America is listening.”
Heavy Defense Hitters
The list of participating companies read like a veritable who’s who of the U.S. defense and aviation industry. Boeing was there, of course, along with Honeywell, Lockheed-Martin, Raytheon and Textron, along with a cross section of leading American suppliers working to strengthen or initiate international partnerships. A high-level federal government delegation, which included General Dennis L. Via, Commander of the Army Material Command; Ann Cataldo, Deputy Assistant Secretary of the Army for Defense Exports and Cooperation; and Thomas L. Vajda, the Consul General of the U.S. Consulate in Mumbai were part of the U.S. delegation.
Clearly, as voiced by the Consul General, defense and space technology is now high on the list of cooperation between the U.S. and India. And the efforts of the federal government to reach out to local Indian manufacturers such as Tata Steel and Mahindra, who of late have formed their own defense equipment producing units, should boost India’s “Make in India” campaign.
Such collaboration could be music to the ears of both Indian and American steel and other metals manufacturers since outside of infrastructure and automobile, defense is one of the largest consumers of steel and aluminum.
For example, Polaris India Pvt. Ltd., a wholly owned subsidiary of Polaris Industries Inc. a leader in off-road and all-terrain vehicles, showcased its products, the Dagor (Deployable Advance Ground Off-Road) and the Mrzr4 at the DefExpo India 2016.
India’s steel imports increased this week for the first time since November and Thomson Reuters warns that copper is still oversupplied and recent price increases will eventually be lost.
Indian Steel Imports
India’s steel imports increased 18% in March, snapping four straight months of falls, provisional government data showed, on the back of deals struck before the government imposed a price floor in February to curb cheap imports.
Last week, the government extended safeguard taxes on some steel products until March 2018, and in February imposed a floor price on imports to deter countries such as China from undercutting local mills.
Copper Still Oversupplied
Copper prices are expected to slide below January’s six-and-a-half-year lows, hit by a lack of production cutbacks and weak demand in the world’s biggest metals consumer China, GFMS analysts at Thomson Reuters said.
The benchmark copper price on the London Metal Exchange has bounced 10% since touching a low of $4,318 a metric ton on Jan. 15, but it is due to resume its downtrend, GFMS said in its Copper Survey 2016 report
India is set to import at least 400,000 barrels per day of Iranian oil in the year from April 1, with refiners looking to ramp up purchases after the sanctions targeting Tehran ended in January, Reuters said.
Vale to Sell its Stake in CSA
Brazilian miner Vale SAsaid on Monday it will sell its entire 26.87% stake in the struggling CSA steel plant to Germany’s ThyssenKrupp for a token value, in a bid to focus on core mining businesses with commodity prices at historic lows.
Over the last three years, the U.S., some European nations, and India, China and South Korea, on the other side of the globe, have periodically imposed or increased duties to curb cheap imports.
U.S. Ferrous Tariffs
At the start of this March, as reported by MetalMiner, the U.S. Department of Commerce announced its affirmative preliminary determinations in anti-dumping duty investigations of imports of cold-rolled steel flat products from Brazil, China, India, Japan, South Korea, Russia, and the U.K.
While China received a previously unheard of preliminary dumping margin of 265.79%, based on adverse facts available, the India respondent to the investigation JSW Steel Limited/JSW Coated Products Limited got off relatively lightly and received a preliminary dumping margin of 6.78%. All other producers/exporters in India received a preliminary dumping margin of 6.78%.
Aluminum Import Duties
Apart from steel, the US aluminum industry, too, of late, has increased its efforts to address China’s overproduction capacity and the resulting glut in the global market. The “China Trade Task Force,” a cooperative effort between smelter Century Aluminum and the United Steelworkers union, have been working to slow imports of cheap Chinese product for some time, but now the industry trade group the Aluminum Association is speaking out more forcefully.
And before you could say aluminum, the Indian government, a few days ago, proposed raising the basic customs duty on the metal by 2.5% in a bid to protect local producers from cheap imports. To be fair, though, to India’s government, the proposal is part of the country’s 2016-17 union budget, so it was not a sudden, knee-jerk move, but a carefully thought out proposition in the wake of increasing demands by local producers.
Basic customs duties were proposed to be hiked on primary aluminum from 5% to 7.5%, and on aluminum products from 7.5% to 10%.
Vedanta Wonders If It’s Worth It
The aluminum lobby in India has been pressing for an increase in the face of low-priced aluminum from foreign countries making its way into the Indian market for years. Some local producers, unable to keep up, even slipped into losses. Vedanta Resources, in August, initiated the process to shut down its 1 million metric ton per year alumina refinery in Odisha.
But Vedanta Resources CEO Anil Agarwal said the move lost meaning, since the hiked duty had been “neutralized” by doubling the tax on coal. In the same union budget, there is a promise to double the clean-energy tax on coal, which now will make the fuel costlier for metal producers, effectively wiping out the gains made by increasing the import tax.
According to industry data, total aluminum imports in India had grown by over 159% to 1,563,000 metric tons in 2015 against 881,0001 mt in 2011, mainly from China and Middle-Eastern countries. This has led to imports accounting for 56% of the Indian aluminum consumption in 2014-15, while products of Indian producers accounted for only 44%.
Interestingly, while the Indian government has taken the step to hike duties to protect local industry, some experts have argued against the move. The government’s own report India’s Economic Survey 2015-16, released before the budget, itself indicated that raising tariffs to quell imports of cheap aluminum would do harm to downstream sectors such as power, transportation and construction.
The report said India’s aluminum industry would continue to experience tough economic times unless the global aluminum price increased. The domestic aluminum industry’s capacity utilization had dropped over the last eighteen months, matching the global aluminum price decline. As of now, India’s cost of production for aluminum was higher than the current global price for the metal, part of it attributed to market saturation by China.