Posted on 18 Dec 2024
India: What will be the implications of possible safeguard duty on Indian steel imports?
- There can be exemptions for special grades of steel
- India can prove safeguard duty amid clear-cut dumping
- SD has greater coverage unlike anti-dumping, MIP
Morning Brief: Stakeholders in the steel industry are being ravaged by surging imports from China and countries with which India has inked free trade agreements. Steel Secretary Sandeep Poundrik last month said that around 62% of steel imports are landing from free trade agreement countries at nil duty.
Domestic mills are facing challenging times where home demand is being chipped away by cheap imports and prices are definitely under pressure. Mills are losing their competitive edge at home especially when selling overseas is such an uphill task today against the backdrop of geopolitical upheavals, rising inflation, falling demand and growing protectionism.
India's steel imports over January-October, 2024 have risen 41% to 7.88 million tonnes (mnt) and by the look of things, volumes will well exceed 9 mnt by calendar-end, which, in its eventuality, will be an over 80% increase over 2023. China led the charts with a y-o-y surge of 98% in 10MCY'24.
BigMint organised a webinar on the very pertinent topic of "Safeguarding Indian steel industry: Are tariff barriers enough?" on 12 December. This topic is highly relevant at this juncture because the Indian government is mulling an imminent safeguard duty of 25% on certain steel imports against the backdrop of growing global protectionism. The proposal was mooted at a joint meeting of the ministries of steel and commerce where top officials from tier-1 mills like SAIL, JSW Steel, Tata Steel, AM/NS India were also present.
Dr Aruna Sharma, Practitioner Development Economist and retired Secretary, Steel, Government of India was the speaker at the webinar.
Key takeaways from the webinar
- Safeguard duties are temporary measures, typically imposed for six months to a year but enough to send a strong message across. SDs can be extended/reimposed. Likely to be imposed this fiscal itself. Can be applied with retrospective effect.
- A case has to be filed by aggrieved parties that the imports are causing an injury to the domestic industry. An enquiry happens into the cause of injury and then its imposition is recommended by the DGTR. The process can definitely take a couple of months.
- DGTR will have to prove that Indian mills' cost of production, including all efficiencies, comes to a certain level while China is selling to India at a price lower than this. China enjoys subsidies. So Indian manufacturers need protection. There is a clear-cut case of dumping and India can prove the safeguard duty. Because the cost of production in China has come down. There is inefficiency in the Indian system and therefore domestic prices are being pressured.
- Safeguard measures are completely WTO-compliant. The advantage of safeguard duties is that these overgrow the FTA arrangements and are irrespective of the country of origin. So, Japan and Korea, with whom India has FTA arrangements, will have to pay the safeguard duty.
- South Korea imports for further processing for their own plants in India, so it is not so much a worrying factor. Rise of China and Japan is "unexplainable and worrying". There is strong case for safeguard duty because of such a difference between their landing price and India's.
- The postponement of Indian mills' expansion plans is another significant matter for discussion, especially as the steel ministry is actively focusing on this issue. "The price differentiation is quite a lot and if this eats into the profit margins of Indian manufacturers, they are liable to postponing their expansion plans," Sharma said.
- Small mills are impacted. Their conversion to green steelmaking to get delayed.
- Export prices not to be impacted because only a small quantity imported is used. Users will replace that with domestic material.
- SD will apply mainly to stainless steel flats and hot rolled coils. SD can cover other products too but these two will mainly be impacted.
- But SD need not be product-wise. There can be a flat duty of 25%. For new, innovative products, for which imported steel is required, government has brought in the PLI scheme. For rest of the products, SD will be applicable.
- Anti-dumping, anti-subsidy is exporter-specific or country specific.
- SD will be very effective because the moment it is imposed, the landing cost increases by 25%, so domestic industry will get an immediate breather. In case, aftr six months, input costs rise, then some raw or input material cost discounting will help the domestic industry to recover.
- Capacity utilisation is slowing down from the normal 85-90%. Slowed government expenditure in the last quarter is adding the slowdown.
- Imports comprise 8-12% of total production but it can damage and need to be addressed.
- Customs/import duties are all subjected to FTAs. Hence, Korea, Japan need not pay. Non-FTA countries must pay import duty. But 25% SG is over and above that.
- FTAs have not been f any advantage to India. We have burnt our fingers in the past. Commerce ministry has been told steel will not like to be part of any FTA.
- Is 25% SD high? DGTR eventually may not touch 25%. As for any impact on MSMEs, dumping hits them too and any input cost discounting will offset this duty. India's credit and power costs are too high.
- End-user impact: There are small quantities of specialised grades which are not manufactured at home and imported. There can be an exemption for these in the final order.
- Fixing quotas for 10% that comprise imports, is not viable, unlike the EU which imports in considerable volumes. India has not reached that stage.
- SD is more apt so that countries cannot circumvent. Anti-dumping or MIP will keep FTAs out of their ambit.
- Indian mills have filed their demand. Formal papers are being submitted.
- Cargo on water will attract duty moment it lands if safeguard is implemented that day.
If anti-dumping is applied on Vietnam, then it can get subsumed within safeguard.
Source:BigMint
