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Steel Duty Hike Will Not Change Anything as Long as We Have FTAs with Japan and Korea

The government has hiked the duty on certain steel products by 2.5%. This is after recently increasing duties on Steel imports by 7.5% to 10%.

I was on CNBC TV-18 earlier today speaking of stocks (Click here) when an interesting conversation happened with Mr. Seshagiri Rao of JSW Steel. (Link)

What he said was:

  • India imports around 45% of steel from Japan and Korea (read: Not China).
  • We have Free Trade Agreements (FTAs) with these countries, which restricts imposed duty to less than 1%.
  • So this 2.5% increase (or the earlier 10% and 7.5% increases) have no impact.
  • It does impact Chinese imports.
  • Imports form Japan/Korea are at $360 per tonne (landed) while China’s at $330.
  • Even in their own countries, steel is available at $500 a tonne, so in effect they are subsidizing exports
  • He recommends a “safeguard duty” of 40% to counter the threat

Whoa, Then Duty Hike Has No Impact?

According to Livemint, Japan and Korea largely supply automotive steel, and China’s providing hot rolled coils. However recent data seems to indicate increasing imports of Hot Rolled Coils from Japan and Korea as well. (Source: Zauba)

 

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Impact : Steel Industry Still In Deep Trouble

I do not support the concept of duties here, as cheaper steel is great for our country. We should be buying that cheaper steel to make our infrastructure work. However the steel companies won’t like it – and the banks even less so since they  have lent a truck load of money to the steel industry.

What is apparent though:

  • With the Free Trade Agreements with Japan and Korea, all the duty hike are of no use. Our maximum imports will continue from these countries, and it’s likely they buy from the China/Russia zone and deliver to us.
  • Steel imports are growing, and prices are falling, despite all the duty we seem to have added.
  • Bank stress on steel companies will only increase going forward.

Markets are down today, but in all likelihood, steel companies will see a continued downturn – duty or not.

  • Biplob says:

    Could somebody tell me why those FTAs were signed in the first place, certainly not to import something. So the benefits must’ve been (for India) is that we could export cheap. But what do we export there? Certainly we don’t export much software, and few clothes.