Author Archives: Sohrab Darabshaw

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What is one man’s meat is another’s poison.

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The proverb seems to be true for India’s coal supply woes.

The country’s power ministry has advised all provinces to start importing coal for the next three years in order to operate their power plants … which, in turn, is music to the ears of coal miners in the United States.

According to a report by the Energy Information Administration, U.S. miners, otherwise struggling to find buyers, may end up exporting 104 million tons of coal in 2018 — up 7.2% from a year ago.

In April alone, India purchased almost 7 million tons, which was one-fifth of all U.S. coal exports.

For the last few years, power plants in India have cut back on coal imports because of the fall in the value of the rupee, the rise in global prices, and increasing reliance of consumers on green energy.

Facing a major coal crunch, Indian coal ministry officials feel there’s no way out but to go ahead with larger imports.

Coal imports were likely to increase to 145 million tons (MT) in 2018, and the uptrend will continue in the next four years, according to a report prepared by the Minerals Council of Australia. The imports stood at 137 MT last year.

The Central Electricity Authority of India (CEA) has said in response to a power ministry directive to take stock of coal supply that government-run thermal power plants must import coal to fill the gap in domestic supply. By the CEA’s own reckoning, India needed to buy only 20 MT of coal from abroad. The power sector’s requirement for coal is estimated at 615 MT for fiscal year 2019.

According to the CEA, the coal stock at power plants had depleted to 15.3 MT in June 2018 — sufficient to power plants for an average of only nine days, compared with the normal level of 35.5 MT. It is the deficit of about 20 MT that CEA said must be imported.

Last year, India imported 7.54 million tons of U.S. thermal coal and 3.92 million tons of metallurgical coal (largely used in steelmaking).

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In the past, Narendra Modi’s government has repeatedly stressed that India was eventually looking to eliminate coal imports. India imported about 80MT in fiscal year 2016, but imports fell to 53 MT in fiscal year 2018.

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The U.S. and India are scheduled to sit across the table this week in Geneva to discuss the case filed by India with the World Trade Organization’s (WTO) dispute settlement mechanism over the U.S.’s imposition of import duties on steel and aluminum.

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The talks will be held under the aegis of WTO’s dispute settlement mechanism, according to a news report by the Press Trust of India.

India is part of the group of nations — which includes China, Russia and Norway, among others — to have filed separate dispute claims on the topic with the WTO. The meeting is part of the consultations the U.S. will be holding with all such countries on July 19-20.

It may be recalled that the U.S. had imposed a 25% tariff on steel and a 10% tariff on aluminum imports from India. India’s exports of the two commodities to the U.S. stands at about U.S. $1.5 billion per annum. India had initially tried to raise the issue with the U.S., and then informally with the WTO, calling the move an “abuse of global trade provisions that could spiral into a trade war,” — sentiments similar to the one expressed by India’s neighbor, China.

In May, India dragged the U.S. to the WTO dispute settlement mechanism over the imposition of import duties.

Consultation is the first step of the dispute settlement process. Incidentally, both the countries are already involved in disputes at the global trade body in the areas of poultry, solar, and export subsidies, to name a few.

According to another news report, senior trade officials of India and the U.S. will meet later this month in Washington to conclude negotiations on a “mutually-acceptable trade package.” Quoting an unnamed official source, it said the meeting comes amid an escalation of the global trade war.

Since India’s proposed additional tariff worth U.S. $235 million on 29 U.S. goods — including almonds and apples — are retaliatory in nature, any rollback of the additional duty on Indian steel and aluminum by the U.S. will lead to a withdrawal of corresponding taxes by the Indian Government on U.S. goods, too.

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The U.S. sees good prospects for its companies in the Indian civil aviation, oil and gas, education service, and agriculture segments.

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Until a few years ago, Tata Steel was in the process of selling off most of its businesses in Europe because of the poor performance of steel globally.

A few days ago, though, the Indian steel major announced its joint venture (JV) with German company thyssenkrupp.

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Tata Steel Chief Financial Officer Koushik Chatterjee was quick to point out that the main reason for the deal was to establish three manufacturing bases in the U.K., the Netherlands and Germany.

In reply to a question by CNBC on why the need for a European presence now, the CFO explained that in 2015-2016, the steel industry globally was in a very difficult situation. Things had, however, changed externally, and also internally in Tata Steel, as the company had undertaken a series of portfolio restructuring moves.

What’s more, the signing of the deal is expected to spell relief for Tata Steel in India, with multimillion-dollar debt offloaded from its own books to the JV.

Tata Steel and thyssenkrupp signed a deal on Saturday after months of protracted negotiations to form Europe’s second-biggest steel company (behind ArcelorMittal) in which Tata and thyssenkrupp will have a 50:50 partnership.

Tata Steel Chairman N. Chandrasekaran told reporters at a press conference in Brussels on Monday that his company would be able to nearly double its capacity because of the JV.

Chandrasekaran and thyssenkrupp CEO Heinrich Hiesinger jointly addressed the conference. The deal will allow Tata Steel to transfer up to U.S. $3 billion (2.6 billion euros) of debt on its European business to the JV company. The chairman added Tata Steel aims to increase its capacity in India from 13 million tons per annum currently to 25 million tons, possibly within the next five years.

In the last few months, Tata Steel has been quite bullish in picking up distressed steel assets after a new bankruptcy code pushed several steel companies into debt resolution in India.

A few weeks ago, for example, it picked up the debt-ridden Bhushan Steel Ltd for about $5.12 billion (Rs 352.33 billion).

But the move does not seem to have gone down well with the stock markets in India. Brokerages gave a thumbs down to the JV, citing economic fallout and uncertainty in the short to mid term.

Most brokerages cut the target price of Tata Steel, citing concerns of a bloated balance sheet and a potential fall in economic interest in the partnership during an IPO.

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Both firms will have to hold a combined stake of at least 50% for at least six years, but at the time of the IPO upon conversion of warrants, thyssenkrupp’s stake will likely increase to 55%.

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For the first time in years, India’s iron ore production crossed the 200 million tons per annum (MTPA) milestone.

For 2017-18, output touched 210 MT, mostly on increased production in the provinces of Odisha and Karnataka, which was 9% higher than the 192 MT produced in 2016-17. This was also the first time crossing that threshold since the crackdown on illegal mining throughout the country. India had produced more than 200 MT in 2010-11 at the height of a mineral boom.

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One of the contributing factors for higher ore output was the Supreme Court of India’s relaxations of the cap on iron ore excavations for Category A and B mines. The court shifted the cap from 30 MT to 35 MT in December 2017. State-owned National Mineral Development Corporation (NMDC), however, had a flat growth rate in iron ore output at 35 MT in the last financial year.

All that may be cause for jubilation — but not every development on the iron ore front has not been good of late.

Take, for instance, the standoff between iron ore producers and steel plant owners in Karnataka over the high prices of the raw material. Miners are said to be contemplating moving the Supreme Court of India to seek permission to export iron ore for lack of buyers.

On the other hand, Vedanta Resources is reported to be considering options, including layoffs for some of the 2,000 employees of its iron ore business in the tourist State of Goa after operations were shut down following a court order. A Reuters report quoted two unnamed sources close to Vedanta as saying mining was unlikely to resume in Goa in the next three years at least, as the state would have to conduct a fresh survey of its iron ore reserves before auctioning mines and seeking environmental clearances to operate them.

The company, which is the biggest miner in Goa with an annual production of around 5.5 MT, said it spends $1.7 million (Rs 120 million) a month on salaries for its employees in the state. Although Vedanta is not known for sacking employees, and would rather relocate them, of late the company has been dealing with a series of setbacks in India.

In Karnataka, steel producers have accused the government-owned NMDC, along with others, of fleecing them where price of the ore was concerned, and demanded that the ore miners should lower domestic prices instead of being allowed to export the ore.

Ever since the differential pricing for iron ore between various Indian states was introduced in 2016, NMDC has charged a premium in Karnataka. Steel companies have made representations to NMDC, but said the latter had not responded to any of them.

The price difference of Karnataka ore compared with that of other states has gone above $12, which is why steel companies are now protesting. Also, in the e-auction system that Karnataka follows for selling iron ore, the price goes even higher. So, steel companies find it preferable to transport ore from neighboring states, like Odisha.

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Meanwhile, there could be a new state joining the list of top iron-ore-producing states in India, as the Indian Environment ministry recently announced a plan on “sustainable iron ore mining” in the Jharkhand province. It has also accepted an annual cap of 64 MTPA there, based on the expert report of the Indian Council of Forestry Research and Education.

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India’s new steel impetus has started to pay dividends, it would seem.

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The Government of India (GoI) has claimed that not only had the new policy saved it about $739 million (Rs 5000 crore) by way of foreign exchange, it had also helped it add around 24 million tons (MT) of crude steel capacity.

Steel Secretary Aruna Sharma told reporters that India had also replaced Japan as the second-largest steel producer this year. The new National Steel Policy (NSP) announced last year had upped the ante and set a new target of raising the capacity to 300 MT by 2030, and produce 250 MT of crude steel.

Sharma said there has been a massive forex saving after the policy was rolled out in May 2017. Steel production capacity itself had increased from 110 MT in 2014-15 to 134 MT in 2017-18, while 7 MT was added in 2017 alone.

In fact, in April this year, India’s crude steel production grew 4.4% to 8.59 MT, according to GoI data. India produced 8.22 MT during the same month a year ago, the Joint Plant Committee (JPC) said in a report. During April 2018, the output of hot metal was at 5.80 MT, as compared to 5.38 MT during April 2017.

Indian steel sector has been growing at a compounded annual growth rate (CAGR) of about 5% over the past four years on account of improvement in the overall capacity utilization, Sharma said. The GoI is hopeful that if the trend continues, the country’s steelmaking capacity would touch the expected 150 MT mark by 2020.

In 2017, India became a net exporter of steel, with exports of 8.2 MT registering 102% growth over the previous fiscal year. The exports from 5.6 MT in FY ’15 rose to 9.6 MT in FY ’18. On the other hand, the imports have declined by 36% from a level of 11.7 MT in FY 1’6 to 7.5 MT in FY ’18.

India has set a target of 300 MT of steel by 2020 and almost one-third of it alone would come from the province of Odisha in East India. Odisha is rich in raw materials needed for steel production, and has potential to produce 100 MT of steel.

About four years ago, India was fourth in global steel production behind to China, Japan and the U.S. Two months back, India’s position went up to second, moving past Japan. India’s crude steel production grew 4.4% to 8.59 MT during April 2018, according to official data.

Four years ago, the steel consumption per head in India was 58 kg. Today, it is 65 kg. The aim is to raise it to 107 kg by 2030.

On a slightly different note, Commerce Minister Suresh Prabhu was on a two-day visit of the U.S. starting June 10 to convince his counterparts that India was playing by the rules where steel and other tariffs were concerned.

Prabhu’s two-day trip to Washington included meetings with U.S. Commerce Secretary Wilbur Ross, U.S. Trade Representative Robert Lighthizer and National Economic Council Director Larry Kudlow. Prabhu’s objective was to try and get exemptions from the tariffs on steel and aluminum and save India’s benefits under the Generalized System of Preferences (GSP), which the Trump government has put under review.

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The GoI has submitted a public comment to the U.S. government in its defense before a June 19 hearing of the GSP subcommittee, which will review India’s eligibility and decide whether New Delhi was providing “equitable and reasonable” market access in exchange for GSP benefits.

Every global business worth its name has or is going digital — the mining sector is no different.

But is the mining sector getting it right while it goes about the transformation? Not exactly, claims advisory agency Ernst & Young in a new report.

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In the report titled, “Digital mining: the next wave of business transformation” — not to be confused with the mining of data — it says digital maturity across the mining and metals sectors means that current digital solutions are merely “functional or siloed,” and only address parts of the value chain.

Global mining companies have started to make some headway in using digital technologies to improve productivity. But, as the report says, focusing on productivity alone is not enough to generate competitive advantage. Companies need to adopt “a more cohesive, end-to-end approach to integrate digital initiatives,” the report states.

In this paper, the E&Y team has explored more of the “how” to commence a digital transformation rather than the “why” businesses should embark on the change.

The report has identified around 60 digital themes and initiatives across the sector, though it finds few examples of a clear, integrated and businesswide approach among mining and metals organizations.

The team has proposed a “wave approach,” which seeks to balance risk and return, and the need for rapid action but also thoughtful planning for players in this sector.

“Mining & metals has so far lagged other sectors in the realm of digital effectiveness,” said Anjani Kumar Agrawal, partner and national leader for metals and mining at Ernst & Young. “The value from digital will only be realized when companies change how they work, rather than succumbing to the lure of individual technology programs and pursuing local optimization, which is not necessarily transformational.

“While a revolutionary approach to digital would be too disruptive, we believe companies with mining activities should adopt a progressive, multiyear strategy that also accounts for business risk and the primary drivers of value.”

Paul Mitchell, Ernst & Young’s global mining & metals advisory leader, stressed the importance of adaptability.

“We see the end-state vision for the mining sector as constantly changing and businesses will need to be ready to adapt and change course as required,” Mitchell said. “While we don’t believe the sector will see radical disruption, the opportunity for new entrants to disrupt existing players poses a real threat. Market leadership can be lost quickly if dominant players respond slowly or ineffectively to industry disruption and external changes. However, the pathway through the waves of digital transformation should not be viewed as inflexibly sequential or static.”

The “waves” that are referred to in the E&Y report are a series of digital transformation waves, which the agency feels “is the optimal way to transition a business from current to future state” and steadily introduce more digital hotspots and interconnections, all as part of a coherent overarching strategy.

Focusing on productivity and profitability alone is not enough to generate competitive advantage, say the experts, but focus must be given to innovation, too.

This approach is structured around these key components:

Digital pre-start: building out connectivity to prepare for digital transformation, which typically involves investment in infrastructure, communications and data.

  • Wave 1: activities that focus on the productivity or performance improvement agenda, and are typically operated within a single function. At this stage, digital can enable a mining operation to manage inherent variability & move toward manufacturing levels of productivity.
  • Wave 2: these activities are broader & span the whole value chain & include initiatives to better manage margin through interactions with customers & suppliers.
  • Wave 3: this stage refers to the rise of disruptive factors that may create significant changes in how the sector operates & may require a step change in business strategy.

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This new report comes in the wake of another report, ‘Top 10 business risks facing mining and metals 2017–2018”, in which E&Y identified “digital effectiveness” as the No. 1 risk facing the mining and metals sector.

The full E&Y report, “Digital mining: the next wave of business transformation,” is available here.

The decision by a provincial government in India to shut down a copper smelter plant may have serious repercussions on copper supplies, not only in India but also globally, experts claim.

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The Tuticorin-based plant was ordered shut by the government of the Tamil Nadu State after hundreds of angry local residents spilled out on the road to protest against the plant’s environmental impact on people’s lives. The protests turned bloody, as police firing led to the deaths of 13 protestors, Reuters report, and the permanent shutdown of the plant.

In its wake, the Tamil Nadu government, succumbing to continued public and political pressure, endorsed a closure order issued in May last year by the State’s pollution control board, effectively shutting down the plant.

Sterlite Copper is owned by the London-based Vedanta Group. The management clearly is not going to let go without a fight. The plant has been under a cloud for several years because locals have alleged that pollution from the smelter has led to health problems, including cancer.

But CEO P. Ramnath has been quoted as saying the closure of the plant would push India’s annual import bill by an estimated $2 billion.

The Tuticorin facilities include a custom smelter, a refinery, a phosphoric acid plant, sulphuric acid plants and a copper rod plant. In addition, there are a captive power plants located in Tuticorin.

As per one estimate, about 4,000 direct jobs and the livelihoods of another 20,000 people will be affected by the closure. Vedanta Sterlite is one of the largest copper producers in the country, and its closure means manufacturers in sectors ranging from electrical to defense will have to turn to imports.

In another move, the Tamil Nadu States Industries Promotion Corporation also canceled deal allotting land for the expansion of Sterlite Copper’s smelting plant.

In November 2017, Vedanta’s board approved the expansion of its copper smelter to 800,000 ton per annum from the present 400,000 tons per annum, with a capex of U.S. $717 million, of which U.S. $141 million has already been spent.

If that expansion were over, it would have made the smelter one of the world’s largest single-location copper smelting complexes.

On its part, Vedanta has termed the government’s order “an unfortunate development,” and said it would study it before deciding what to do next.

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India’s annual copper consumption is expected to almost triple to 2 million tons in the next decade, according to a projection from Hindalco Industries Ltd. Vedanta produced about 48% of the country’s total copper output of 842,961 tons in 2017-18, according to government data.

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It was a report in the Hong-Kong-based newspaper, the South China Morning Post that sparked it all off.

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The report claimed that India’s neighbor, China, had started large-scale mining operations in Lhunze county on its side of the “disputed border” with India in the Himalayas.

It said the area was literally a “treasure trove,” having gold, silver and other precious minerals, valued at about U.S. $60 billion according to Chinese state geologists.

On the face of it, at least, the report and the development seems to have caught Indian authorities by surprise.

On its part, China tried to downplay the report, to a degree rubbishing the claims made in the Post report. A report in The Economic Times quoted an editorial in the Global Times tabloid that questioned the news report’s motive, at the same time hoping that India would not be “provoked” by it.

“It is to be hoped that India will not be provoked by this report, lose focus on the big picture of the relationship between Beijing and New Delhi and get off the track of Sino-Indian cooperation,” said the editorial titled “Dodgy report disturbs Sino-Indian ties.”

In fact, the editorial also said to many Chinese people, their first impression was that the report is not credible, given the vague facts in the story.

It’s hardly a secret that the Himalaya region, from India, Tibet and all the way to Afghanistan, has massive reserves of mineral oil, gold and many precious materials. Arunachal Pradesh is said to have vast reserve of mineral oils and even coal reserves. Coal is explored from Namchik-Namphuk mines in Tirap district. In addition, there are huge reserve of dolomite, limestone, graphite, marble, lead, zinc, etc.

Indian newspapers were full of reports talking of a new flashpoint between the two neighboring countries following the South China Morning Post report. India has not yet reacted officially to the news report.

Last year, there was a major standoff between the armies of both countries at the border area of Doklam, which is a triangle area disputed by three countries: India, China and Bhutan. The standoff emerged after China’s People’s Liberation Army (PLA) construction party attempted to build a road near the Doklam area. Bhutan claims Doklam is its area while China claims it as part of its Donglang region.

A few decades ago, India claimed China had illegally occupied Aksai Chin — an area of 38,000 square kilometers, part of India’s Jammu and Kashmir province — and had its eyes on Ladakh because the area was rich in minerals and natural resources.

For over a year now, China has been setting up infrastructure in this mountainous region, including Doklam, leading to India registering its protests over the move to remove the status quo of the disputed border maintained all these years.

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What seems to have gotten China’s goat was the fact that the Post report also claimed that China was rapidly building infrastructure to turn the area into another South China Sea scenario, which the Global Times editorial dubbed an absurd observation. In fact, the editorial also said Lhunze county was not a disputed region at all, as it “fell entirely within China’s sovereignty.”

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Even as news came in late last week that some of India’s biggest steelmakers were set to expand production after reporting solid quarterly earnings amid strong steel prices, well-known research agency CRISIL has said in a report that resolution of stressed steel assets – those that are bankrupt – will “alter” the Indian steel sector irrevocably.

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Steel companies with about 22 million tons (MT) of crude steel capacity have been referred to the National Company Law Tribunal (NCLT) in the first round of the stressed assets resolution process by India’s apex bank, the Reserve Bank of India (RBI).

The CRISIL research report said the resolution of these cases would alter India’s steel sector landscape in three ways:

  • Over half of steel sector’s outstanding debt would stand resolved
  • About a fifth of India’s crude steel capacity held by these companies will move to stronger hands, resulting in better working capital and liquidity management (which, in turn, would lead to improving utilization levels)
  • The flat steel segment would consolidate further and be controlled by fewer players – both domestic and global

“For acquirers of these assets, apart from attractive product portfolios & locational advantages, these assets also offer easy scalability,” said Prasad Koparkar, senior director of CRISIL Research. “The 22 MT of capacities under resolution have brownfield expansion potential of another 20-21 MT – based on their environment clearance and regulatory filings.”

India’s flat steel market is dominated by six players that account for 85% of the capacity, with the rest being distributed between smaller players and re-rollers. Of the six, three are currently part of the NCLT I resolution process.

Many, as reported by MetalMiner earlier, were being eyed by large domestic and international steelmakers for expansion or entry strategies.

The CRISIL report further claimed that based on various acquisition scenarios, the flat steel market in India was expected to consolidate further from the current scenario — of 85% being controlled by six players — to three or four players.

Already, India’s biggest steelmakers, such as JSW Steel Ltd., posted record net income last Wednesday and outlined a $6 billion plan to raise output. Tata Steel Ltd., which aims to double domestic capacity, swung to profit, helped by a one-time gain. Both are ramping up to meet an anticipated surge in domestic consumption, with the government set to spend trillions of dollars on expanding infrastructure.

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The Bloomberg report said JSW has forecast Indian steel consumption to rise by about 7.5% in the 2019 financial year.

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India has been champing at the bit ever since the United States imposed a 25% import tariff on steel and 10% on aluminum imports to protect its own industry.

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Last week, India told an informal meeting of heads of delegations at the World Trade Organization (WTO) that the U.S.’s move was an abuse of global trade provisions that could spiral into a trade war, the Economic Times reported.

India raised concerns and warned that this had a “clear risk of spiraling into a trade war” since it would prompt other countries to take retaliatory measures. The U.S. Department of Commerce in February had found that the quantities of steel and aluminum imports “threatened to impair national security.”

On March 8, the U.S. enacted the tariffs, invoking national security. (Since then, South Korea, Australia, Brazil and Argentina have won long-term exemptions, while the E.U., Canada and Mexico have temporary exemptions which are now set to expire June 1 after a 30-day extension was recently announced.) After the March announcement, several countries — China, India, the E.U., Russia and Thailand, among others — called upon the U.S. to enter into safeguard consultations.

India, specifically, said it would lodge a trade dispute against the United States at the WTO if Washington did not exempt it from the higher tariffs.

Following an outcry, U.S. President Donald Trump agreed to suspend their imposition until May 1 for Argentina, Australia, Brazil, South Korea, Canada, Mexico and the European Union — but India was not included on this list.

The U.S. had also rejected a request from India to enter into what are called safeguard consultations at the WTO.

India said it considered the U.S.’s measure to “be an emergency action/safeguard measure within the meaning of Article XIX of the General Agreement on Tariffs and Trade, 1994, (GATT 1994) and the Agreement on Safeguards.”

“As an affected member with significant export interest to the United States for the products at issue,” India said it wants “consultations with the United States pursuant to Article 12.3 and Article 8.1 of the Agreement on Safeguards and Article XIX:2 of the GATT 1994.”

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The U.S. said that under Section 232 of the Trade Expansion Act of 1962, Trump determined that tariffs were necessary to adjust imports of steel and aluminum articles that threaten to impair the national security of the U.S.