Author Archives: Sohrab Darabshaw

For a while, whether or not India would join the Regional Comprehensive Economic Partnership (RCEP) was touch and go.

But eventually, much to the relief of domestic steel companies and those from other sectors, the Narendra Modi-led Indian government decided to sit out the controversial RCEP trade pact, which features the 10 members of the Association of Southeast Asian Nations (ASEAN), plus China, Japan, Australia, New Zealand and South Korea.

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As Prime Minister Narendra Modi told the delegates at a negotiation meeting in Bangkok, “Neither the talisman of Gandhiji nor my own conscience permits me to join the RCEP.”

India’s decision comes seven years after negotiations over the free trade agreement began.

The RCEP covers trade in goods and services, in addition to investments, economic-technical cooperation, competition and intellectual property rights.

If India had joined RCEP, it would have become the largest trade agreement in the world, accounting for one-third of global economic output and half of the world’s population.

The remaining 15 nations have decided to go ahead with the deal, led by China.

According to some media reports, like one by India Today, the RCEP was a Chinese game plan to “save its manufacturing industries from folding under their own weight.”

India decided not to join the RCEP for several reasons. Among them, India wanted an important clause included for an auto-trigger mechanism as a shield against sudden and significant import surge from countries.

President of Indian Chambers of Commerce and Industry Sandip Somany was quoted in The Hindu as saying serious apprehensions on the RCEP had been expressed by several sectors, including steel, plastics, copper, aluminum, machine tools, paper, automobiles, chemicals, petro-chemicals and others.

For the domestic steel industry, the Indian prime minister’s announcement was music to its ears. The Indian steel industry had, from the start, opposed what it had dubbed a one-sided pact.

Speaking to LiveMint, Bhaskar Chatterjee, secretary general and executive head for Indian Steel Association, said representatives of the steel industry had met with the Indian Ministries of Commerce and Steel and the Indian Steel Association, where they asserted that if the signing the RCEP was inevitable, then steel items should be kept out of the agreement.

In addition to steel, other sectors that had expressed reservations about joining the RCEP were aluminum, petro-chemicals, agriculture, dairy, steel, rubber and textiles.

Experts were of the view that if other nations were allowed to ship their goods to India without absolutely any duty, they would obviously price them cheaper than their Indian counterparts, creating a market skewed against Indian producers and manufacturers. Playing at the back of the mind of Indian steel companies was 2016-17, when Chinese companies dumped steel in Indian markets in large volumes.

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One other reason behind Modi’s decision to walk away from the deal is the fact that the Indian economy today is particularly vulnerable and weak, with GDP growth stagnating and unemployment at new highs.

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India is right in the middle of its annual festival season that carries on until the year’s end — as is customary, all eyes are on the purchase patterns for gold and silver during the festival of Diwali.

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When the country emerged from Diwali time, initial data showed that purchase numbers were down compared to the previous year.

Or, if you are an eternal optimist, the numbers this year were “not as bad” as predicted.

Experts like Surendra Mehta of the India Bullion and Jewellers Association (IBJA) had but a few days ago painted a picture of doom and gloom, forecasting gold buying would fall by 50% compared to Diwali 2018.

But guess what? The IBJA found out that its prediction had not come true.

Ajay Kedia, director of Kedia Advisory, said gold buying fell 25% this year, LiveMint reported.

Consumers had purchased about 30 tons of gold on a single day of Diwali called “Dhanteras,” down by an average 10 tons as compared to the last few years.

According to sales figures provided by other agencies in the business, pre-Diwali Dhanteras sales of gold and silver had dropped by about 40%.

According to the Confederation of All India Traders (CAIT), about 6,000 kg of gold was estimated to have been sold till evening on Dhanteras day, compared with 17,000 kg of gold sold on the same day in 2018.

CAIT’s Gold and Jewelry Committee Chairman Pankaj Arora was quoted by India Today as saying there was a decline of business from 35-40%.

Anantha Padmanaban, chairman of the All India Gem and Jewellery Domestic Council (GJC), told the same reporter they expected sales, in volume terms, to fall 20% compared with last year; however, sales in terms of value would be the same as last year because of higher prices.

Different figures, but all confirm one basic thing: gold and silver purchases were definitely down as compared to previous years, as feared.

The reasons for Indians losing some interest in bullion this year are:

  • Rising international prices
  • Increasing value of the U.S. dollar against the Indian rupee
  • Liquidity crunch in the Indian market
  • Rising unemployment
  • Increase in import duty on gold and other expensive metals

The benchmark gold futures in Mumbai touched a record U.S. $562 per 10 grams (Rs 39,885) in early September and were more than 20% higher than last year. Experts believe these prices could test approximately U.S. $580 over the next year.

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India is the second-biggest market for gold, after China.

Many in the Indian media have started writing off gold as an investment option for Indians, but as someone who has tracked this metal over the years, allow me to say this – they will eventually be proven wrong.

The Indian love affair with gold is not over and won’t be for a long time coming.

It has come as a surprise to some in the coal sector that for the third consecutive month, India’s coal imports are set to drop in October.

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News agency Reuters reported India’s seaborne imports of both thermal and coking coal were on track to be about 13.3 million tons this month, according to vessel tracking and port data compiled by Refinitiv.

The development has caught some experts off guard given the fact that India’s largest producer, Coal India, has seen industrial action in some of its operations and the flooding of a major mine.

By the end of October, analysts believe India’s import figure is likely to go up. Even if October imports do exceed the current estimate, it’s likely they will still fall short of the 15.3 million tons of September, which was down from 15.9 million tons in August.

Like their global counterparts, Indian steelmakers are dependent on coal for making steel. India is dependent on imports of coking coal, as there is not enough indigenous coal to meet domestic demand (India’s total coal reserves are about 260 billion tons).

India imports coal from countries like Australia, Canada and the U.S. The import figures through July this year were 8% higher as compared with the same seven-month period in 2018.

Because of strikes, Coal India said its output was down by 13 million tons, or 2.1%, of its annual output this financial year.

To add to the coal producer’s woes, an unusually high and largely devastating monsoon season has stopped production at a major coal mine in the Chhattisgarh province, exacerbating the overall coal production shortfall.

In the last days of September, a river here suddenly changed its course, flooding the Dipka coal mine in Korba district, Quartz India reported. Incidentally, Chhattisgarh produced the highest quantity of coal in the country in financial year 2018-19.

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Recently, India became the second-largest destination for seaborne coking coal after China, which was about 13% of global demand in the spot market.

The inevitable has happened.

For some months now, copper industry experts in India have been predicting India would become a net importer of copper during this fiscal year.

Well, that has happened.

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For the first time in 18 years, India turned into a net copper importer. The primary factor behind the shift is the permanent closure of Sterlite’s 400,000 ton per annum smelter in South India from May 2018.

Two other major players, along with Sterlite, dominated primary copper production in India: state-owned Hindustan Copper and privately held Hindalco Limited. With Sterlite gone from the picture, there is now a shortfall of almost 40% between supply and demand.

The Times of India quoted Urvisha Jagasheth, research analyst at CARE Ratings, saying in a report that domestic production of refined copper had grown at a CAGR of 9.6% during fiscal years 2014-2018. Production fell by 46.1% during FY 2019 due to the Sterlite closure.

Faced with no other option, those requiring copper, like cathode ray tube producers, turned to importing refined copper.

During the nine months in FY 2019, India imported refined copper from Japan which accounted 71% of the country’s copper imports, followed by the Democratic Republic of the Congo (7%), Singapore (6%), Chile (4%), South Africa (4%), Tanzania (3%), Switzerland (1%) and UAE (1%), the Financial Express reported.

Meanwhile, in the other direction, India exported refined copper to China (75%), Taiwan (10%), Malaysia (7%), South Korea (6%) and Bangladesh (3%) during the same period.

CARE said in an earlier report in the Business Standard that there was intense pressure from domestic buyers because of the increasing demand from the power sector, what with the Indian government’s emphasis on renewable energy. Soon, adding to this mix, manufacturers of hybrid and electric cars will also become major buyers of copper.

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“We estimate domestic refined copper demand to increase by 7-8 per cent (including consumption of scrap) by the end of FY20,” the CARE report said.

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Faced with lobbying by the steel sector and some others, the Indian government is caught in a bind on whether to join the Regional Comprehensive Economic Partnership (RCEP) or not.

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Last week, none other than Indian Prime Minister Narendra Modi chaired a meeting of the key players on the RCEP to decide on this vexed issue.

The RCEP is a proposed trade pact between the Association of Southeast Asian Nations (ASEAN) and their six Free Trade Agreement (FTA) partners. On the list are Australia, China, India, Japan, Korea and New Zealand.

The countries in the proposed trade group account for 25% of global gross domestic product (GDP), 30% of global trade, 26% of foreign direct investment flows and 45% of the world’s population.

Time and time again over the last few months, Indian steel companies have expressed reservations over the RCEP, especially in the wake of cheap steel imports flooding the Indian market from China and South Korea.

The concluding talks for the signing of the RCEP are currently in the last phase.

The production cost of steel in India of U.S. $40 a ton is one of the highest in the world, according to Entrepreneur India.

There are several reasons for this – red tape, poor infrastructure, taxes and exorbitant capital cost. Indian steel producers maintain that becoming party to the RCEP would ease imports, but would also hurt Indian steel producers’ sales.

India’s steel export dropped by 7.5% in the first five months of this fiscal year. As compared to the last year, steel exports in August surged to 37% in 2019.

India’s major bugbear is China.

India’s trade deficit with China and RCEP in 2018-19 was $53.6 billion and $105 billion, respectively. India is currently high on its Make In India program, and steel companies say further liberalization in tariffs would lead to a surge in imports, harming the domestic industry.

According to the Financial Express, India is contemplating some measures to safeguard its producers’ interest. It plans to employ an “auto-trigger” safeguard mechanism for imports to protect domestic players.

This plan will come into play once imports of a particular sensitive product breach a stipulated limit. The concessional duty under RCEP will then be scrapped for that item and the normal, most favored nation (MFN) duty will apply. India wants this for at least 68 products for about 10 years.

Another plan is the flexibility of a “snapback,” transitional safeguard mechanism for all RCEP members.

All these safeguards will be in addition to mechanisms already in place, such as anti-dumping, countervailing and traditional safeguard duties — all aimed to act against any import spikes.

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India has decided to trim or remove tariffs on Chinese goods in phases over 25 years to protect its domestic producers.

Nuclear energy is, for now, playing a minuscule role in India’s energy story, contributing to about 2% of the country’s electricity needs.

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But nuclear power generation in India is a story that is set to grow.

India is looking at adding another 5.4 GW to the nuclear power plants in the next decade, adding to the current total output of 6.7 GW.

But new nuclear plants have been opposed by the local populace in almost every part of the country where they have been proposed to be set up.

Now, an in-principle approval given by the Indian government to initiate exploratory mining for more uranium across the two southern provinces of Andhra Pradesh and Telangana has locals up in arms.

The location also includes a nature reserve not only rich in flora and fauna, but also with a large tiger population. The technical go-ahead was given a few months back for Uranium Corporation of India Limited (UCIL) to begin exploration for uranium, but an earlier protest led to a temporary pause in the process.

Andhra Pradesh is the largest producer of uranium in India. Tummalapalle village, located in the Kadapa district of Andhra Pradesh, is considered to have one of the largest uranium reserves in the world.

Next to the mine there is a processing plant that converts the uranium ore into sodium diuranate for use in nuclear power plants. Over the years, local farmers and environmentalists have alleged that it had led to the contamination of soil and groundwater, in addition to the destruction of water bodies.

A rethink by the government to go ahead with the fresh exploration has once again raised the hackles of environmentalists in India, who argue that whatever the procedure used to extract uranium, the wholesale mining for uranium would produce large amounts of radioactive waste that would pollute a major river nearby (as well as the surrounding areas).

They claim even if the waste is treated before disposal, uranium mining can still lead to the contamination of water and soil, eventually harming the flora and fauna of the region.

Officials of the Atomic Minerals Directorate tried to take samples after drilling a bore well for exploration and research, but were prevented by villagers, according to the News Minute.

The villagers have also been joined by opposition parties in the protests.

India’s nuclear plants are controlled by Nuclear Power Corporation of India (NPCIL), a state-owned corporation. India currently has seven nuclear power plants, but there are plans to add more.

But toward that goal, the government faces an uphill task.

Indian Prime Minister Narendra Modi told a conference by the Bloomberg Global Business Forum in New York that India was unable to drastically reduce its dependence on coal for electricity generation. India, incidentally, has the third-highest coal reserves in the world.

The prime minister partially blamed the dependence on coal on being kept out of the Nuclear Suppliers Group.

It is only because India is not part of this group that India does not have an assured supply of nuclear fuel, Modi told the audience.

Compared to other countries, India’s coal generation is expected to grow into the late 2030s, according to BloombergNEF.

Of late, India has been scouting around for nuclear fuel suppliers. India and Uzbekistan recently signed a deal for long-term supply of uranium to power its domestic atomic reactors. Kazakhstan and Russia are already supplying the same to India, while there are plans to also purchase the fuel from Australia.

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First found in 2000, the uranium reserves in the province of  Andhra Pradesh were officially commissioned in 2012 and equipped to cater to 25% of the requirement of uranium in India’s nuclear power plants.

The total reserves of uranium oxide in the divided Andhra Pradesh reached about 122,000 tons in 2017.

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Indian Prime Minister Narendra Modi’s doubling of India’s renewable energy target by 2022 has made global headlines.

At the United Nations Climate Action Summit earlier this week, the Modi said India was now aiming to install 450 GW of renewable energy by 2022, more than double the previously promised 175 GW, The Hindu reported.

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India had committed to creating 175 GW of green energy capacity under the Paris Climate Agreement in 2015. The country has about 77 GW of installed renewable energy capacity, more than double its capacity as of five years ago; projects in the pipeline will add about 60 GW in renewable energy capacity.

Addressing the UN Summit last Monday, Modi reiterated India’s seriousness about doing something concrete on the renewable energy front. He highlighted other promises, including India’s plans to spend about U.S. $50 billion “in the next few years” on the Jal Jeevan Mission to conserve water, harvest rainwater and develop water resources.

In addition, he announced two international initiatives, the first being a platform with Sweden and other countries, for governments and the private sector to work together to develop low0carbon pathways for industry, plus a second initiative called the Coalition for Disaster Resilient Infrastructure. The U.K., Australia and island nations such as Fiji and the Maldives will be part of this coalition.

The Paris Climate Agreement is aimed at strengthening the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius.

Modi added that India had a capacity of 4 GW and that the country is well on its way of adding 100 GW of solar power by 2022.

India is the world’s third-largest source of greenhouse gases after China and the United States. Experts here point out that while the Indian prime minister’s aims are laudable, there still was a question mark on whether they could be practically achieved or not.

The country has moved on to renewable power over the last five years, banking on solar power to lead the transformation.

A recent report by the International Energy Agency on worldwide energy investment noted renewable power investments in India were much ahead of those for fossil fuel-based power for the third year in a row. Spending on solar energy had also surpassed spending on coal-fired power generation for the first time in 2018.

But India still relies heavily on coal-powered energy and a large chunk of investments are still being made in that sector. There are reports that coal demand in India will nearly double from 2020 to 2040.

The Hindu Business Line newspaper reported environmentalists and experts in India had mixed feelings about the prime minister’s target. The report quoted environmentalist Chandra Bhushan as saying Modi had given a “positive roadmap” for India. He said the promise of increasing renewable energy capacity to 450 GW showed Modi’s seriousness about reducing the carbon emissions.

Others quoted in the report, though, were not so sure, arguing that renewable energy was costly and achieving the target may not be easy to achieve. NGO Social Action for Forests and Environment founder Vikrant Tongad expressed support for the move, but expressed reservations about how money will be raised to actualize the goal.

Environmental activist Gaurav Bansal told the Hindu Business Line that instead of blindly setting a target of increasing renewable energy, the Indian government must look into the concern that it does not harm the environment.

Meanwhile, showing its determination to go ahead with the renewables plan, Modi remotely inaugurated the Gandhi Solar Park at the UN headquarters in New York, the Hindustan Times reported.

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The inauguration came as part of the Gandhi@150 commemorative event marking the 150th birth anniversary of Mahatma Gandhi. The 50 kilowatt hour (kWh) rooftop solar park was built at a cost of U.S. $1 million. Each panel is powered to reach the max of 50 kWh of generation power, which will take the park’s annual output up to 86,244 kWh.

Iron ore has had a volatile year.

Based on a forecast made by sector experts and research agencies, the coming year will not bring any cheer on that front.

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Much of the gloom and doom scenarios stems from the fact that two of the world’s fastest growing economies, China and India, have experienced slowing growth. As a result, demand for steel — of which iron ore is a crucial component – for infrastructure projects or automobiles is waning.

Ore prices went up in the first few months of this year, largely  because of supply disruptions in Brazil and Australia; when the supply chain recovered, prices fell. A slight uptake from China saw prices going up to $100 ton a month earlier this month, but experts now predict that upward movement might be coming to an end.

Indian steel major JSW Steel Ltd itself has said iron ore prices will start sliding from next year as demand wanes.

Join Managing Director Seshagiri Rao said prices may fluctuate between $80 and $85 a ton for the rest of 2019 before sliding to $60 to $65 next year, according to Bloomberg.

According to a report by Citigroup Inc, cited by Finance & Commerce, iron ore is looking at a potentially long slide in the coming years.

According to the report, prices will go down because of weakening demand in No. 1 buyer China, which will offset gains in consumption in other emerging markets (including India).

According to Ed Morse, global chief of commodity research, steel demand is “no longer going to be what it was,” and that no combination of India, Brazil and any other emerging-market country could replace the China market.

Faced with this kind of a situation, the Indian government has permitted the state-run Steel Authority of India Ltd. (SAIL) to sell 25% of its iron ore stock and to dispose off 70 million tons of low grade ore lying at mine heads across the country, the Business Standard reported.

According to the Indian Ministry of Steel, over 162 million tons of low-grade iron ore was available. However, regulations did not permit SAIL to sell these materials to domestic end-use companies.

The move, though, is being interpreted as an effort to reduce concerns regarding the expiry of mines.

Around 30 working iron ore mines are expiring on March 2020. In a tweet, the Ministry said it was giving permission to sell 70 million tons.

“Government of India has given permission to sell 70 million tonnes of sub grade minerals in the captive mines of SAIL,” the Ministry of Steel tweeted. “This would enable @SAILsteel to lead the way in ensuring availability of iron ore in the years up ahead for the steel sector. Thank you @MinesMinIndia.”

By this, the Indian government hopes SAIL will meet its own requirements, & also bridge the expected shortfall in domestic iron ore market.

The Mumbai-based financial services group Edelweiss Group says the decision highlights potential delays in the scheduled bidding process in the domestic ore market, the Financial Express reported.

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It said if this bidding is delayed, there could be a shortfall of at least 30–35 mtpa, even if SAIL manages to ramp up production. The government has allowed SAIL to sell iron ore to third parties from its captive mines for two years, Edelweiss noted. However, “infrastructure constraints and beneficiation issues” at customers’ end would constrain potential gains, according to Edelweiss.

As part of its energy planning — especially on the oil and gas front — India has been actively looking at its neighbors in the past few months for support and supply.

Besides Russia, the other countries India is looking to for fulfilling its energy requirements is the United Arab Emirates (U.A.E.), Saudi Arabia and Qatar.

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On a visit of the U.A.E. earlier in the week, Dharmendra Pradhan, India’s minister of petroleum and natural gas and minister of steel, met his U.A.E. counterpart,Minister of Energy and Industry Suhail Mohamed Faraj Al Mazroui, and a host of other leaders from the region for talks on energy.

Pradhan also addressed the opening session of the 8th Asian Ministerial Energy Roundtable in Abu Dhabi on Tuesday.

Addressing the delegates at this conference, the Indian minister said he was sure that the shift in global energy consumption to Asia would be a reality soon.

Anticipating that, he said it is necessary for the change to be “rooted in energy justice,” a very important component of the energy vision of the present Indian government, the Orissa Diary reported.

He forecast that within the next two decades, Asia would be driving global economic growth, meaning developing economies would drive 80% of incremental global growth. India and China would be in the driver’s seat, accounting for more than half of that growth, he argued.

Thus, he said, it is imperative that low income, low per capita energy-consuming countries have access to technology and capital for their energy efficiency and clean tech plans. In turn, that access would provide better energy security than short-term interventions in fossil fuel supply and price, he said.

India’s energy vision, he explained, is based on four pillars: energy access, energy efficiency, energy sustainability and energy security. Energy justice was a major objective of this plan, he added, for which India had undertaken many initiatives.

India’s per capita consumption of energy is quite low compared with the global average. Pradhan said the Indian government is trying to improve the country’s energy supply to rectify the disparity.

India is the third-largest energy consumer in the world, with its share of total global primary energy demand set to double to 11% by 2040.

India has already laid down over 16,000 kilometers of gas pipeline and an additional 11,000 kilometers is under construction. The country is also aiming to produce 175 GW of renewable energy by 2022, with a solar target of 100 GW by 2022.

On his visit, Pradhan met Al Mazroui here and discussed ways of strengthening bilateral hydrocarbon engagement between the two countries.

India wants the U.A.E.’s increased participation in Phase II of India’s Strategic Petroleum Reserves Program coming up in India’s Odisha and Karnataka provinces, Sify reported (the U.A.E. is already a partner in Phase I).

According to news agency ANI, on Sept. 9, Pradhan met his Saudi counterpart Prince Abdulaziz bin Salman in Jeddah and discussed ways to boost energy ties between the countries.

Significantly, just a week prior to the minister’s Gulf visit, it was announced on a visit of Indian Prime Minister Narendra Modi to Russia that a consortium of Indian companies led by state player ONGC Videsh would acquire a 49% stake in Russia’s Vankor cluster oilfields, Oil and Gas Eurasia reported.

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Modi Russian President Vladimir Putin agreed to the deal as part of a wider range of investment agreements signed at the Eastern Economic Forum in Vladivostok. It is worth noting the agreement comes after over three years of protracted negotiations with Russia. With this agreement in place, India is set to become a strategic player in this sector in the Arctic region.

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India’s growth rate has slowed, which in turn means sluggishness in the manufacturing sector.

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All of the above means lower consumption of steel.

Riding on these developments comes the news that domestic steel producers are sitting on a “larger than usual” steel inventory.

A report in the Business Standard quoted Sushim Banerjee, director general at the Institute of Steel Development Growth, as saying steel inventories are at “alarming” levels of 35 days rather than the more typical 21 days.

The total steel inventory of all primary producers in India is at 2 million tons, up from the more typical level of 1 million tons, according to the Business Standard. Because of such high inventory, domestic prices have fallen by about 20% since April.

Ratings agency Fitch Solutions has revised its 2019 global steel price forecast downward to an average of U.S. $600 per ton from $650, citing weak investor sentiment, the ongoing U.S.-China trade war and uncertainty surrounding the U.K.’s Brexit effort, the Business Standard reported.

Nikunj Turakhia, director at the Steel Users Federation of India, was quoted as saying domestic steel prices were close to the bottom and hoped they would start rising soon.

There is more bad news for Indian steel companies.

Ratings agency India Ratings and Research has revised its outlook on the steel sector to “stable-to-negative” from “stable” for the remainder of this fiscal year. One of the reasons for the downgrade is sluggish demand. The rating agency has also revised downwards its fiscal year 2020 steel demand growth expectation to around 4% from the previous forecast of 7%.

All of this comes as global crude steel production rose by 1.7% in July, with Indian steel production increasing by the same percentage.

Tata Steel has announced a closure of some of its operations in the U.K., which could lead to a loss of about 400 jobs.

It has not been a good year for many steel companies in India; for example, Tata Steel Ltd’s first-quarter profit slumped to its lowest level in more than two years.

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India’s S&P BSE Metal Index has fallen by about 30% so far this year due to the slowdown in the economy and infrastructure.