India’s Budget Leaves Domestic Steel Players Perplexed, No Clarity in Indian Steel Tariffs

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Coiled steel for import

India’s annual budget may have brought some cheer to the steel industry but clarity on one of its crucial and long-pending demands – increasing the import duty to stop cheap steel from entering the domestic market – is still lacking, leaving many in the supply chain flummoxed.

Indian steel tariffs are thought to be necessary to combat Chinese imports.

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The entire industry was hoping that the budget, presented on Feb. 28, would have addressed the issue but ambiguity has left even the most savvy insiders perplexed, and decidedly worried.

Conflicting Statements in the Budget

Shares of major steel companies on India’s top bourse, the Bombay Stock Exchange, dropped earlier this week due to the uncertainty, reflecting the mood of steel investors. As reported earlier by MetalMiner, Finance Minister Arun Jaitley was expected to raise tariffs on steel products by at least 5% to stop the influx of cheap steel, especially from China, into Indian markets.

Instead, while announcing in the budget provisions that the tariff rate on steel imports would be increased to 15% from 10%, the minister also simultaneously said there would be “no change in the existing effective rates of basic customs duty on these goods.”

Well that’s about as clear as mud. These seemingly contradictory statements left the steel sector perplexed. H. Shivramkrishnan, chief commercial officer at Essar Steel, was quoted in Live Mint saying that since there was no increase in the import duty, steelmakers feared that imports would continue unabated.

On the weekend after the budget, there were conflicting reports that claimed India would raise the import duty on steel by 5 percentage points from April 1, but no official confirmation was forthcoming.

Other announcements in the budget, though, did lift the mood of the steel sector. The subsidies for cheap housing, so also more sops to propel infrastructure development within India, meant more consumption of local steel.

Other Charges A Mixed Bag

On the other hand, the railway budget announcement that India would raise railway freight charges on coal, iron ore and steel from April 1 to help fund its network expansion evoked mixed reactions from the steel industry. Some felt this would lead to an increase in steel prices. The consequent hike in prices cannot be passed on to customers because of the present “weak” levels of steel demand, many steel companies said.

Chinese steel imports in the current fiscal year were nearly double of what they were in the same period last year, and Indian steelmakers are now demanding that the Indian Government increase import duties from 5 to 10% and implement anti-dumping measures as the US Commerce Department did last December to thwart cheap Chinese imports into the US.

There were 8.1 million tons of steel imported  into India from April 2014 to January 2015, about 2.9 million tons had been from China.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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