MIP extension key to health of India's steel industry

    KOLKATA: The health of the domestic steel industry in the second half of FY2017 would critically depend upon the Government's decision on MIP extension beyond August 2016, and the final outcome of the recent anti-dumping investigations initiated by the Directorate General of Anti-Dumping and Allied Duties, ratings agency ICRABSE 1.31 % said it its latest sector report.

    A 25 per cent increase in domestic steel prices till the middle of June 2016 would have led to better profitability of steel companies in the first quarter (Q1) of FY2017 despite iron ore and coking coal price increases of about 11 per cent and 9 per cent respectively in this period.

    However, this is unlikely to significantly boost their liquidity and coverage indicators, given the continuing high debt levels of domestic steel companies, ICRA said.

    In recent past, the Indian steel industry has been severely impacted by a global overcapacity, fall in international prices and surge of imports.

    In FY2016 alone, steel imports increased by more than 25 per cent from 9.3 million metric tonne (MT) to 11.7 million MT, over and above the 71 per cent increase in FY2015.

    To check imports, the government imposed a 20 per cent 'provisional' safeguard duty (SGD) on several hot-rolled coil (HRC) products in September 2015. Nevertheless, international prices continued to fall, neutralising the impact of the duty.

    ICRA said a recent report on the state of the Indian steel industry, it found that a minimum import price (MIP) imposed in February 2016 on 173 grades of steel failed to have a material impact on steel imports till April, due to a lead time of about one-and-a-half to two months for the shipment to arrive in India.

    However, the full effect of the MIP set in from May, and as per initial trends, steel imports in April-May FY2017 have declined by close to 30 per cent year on year.

    International steel prices have been extremely volatile since February 2016. Chinese export HRC offers, after increasing sharply by around 80 per cent and reaching a recent high of around $ 470 per tonne in April 2016, has seen a steep correction of almost 30 per cent since then.

    Given the uncertainty surrounding the Government's decision on extending the MIP beyond August 2016, domestic steel prices have been on a decline since mid-June 2016, correcting by 8 per cent in the last one month, ICRA said.

    Weak domestic steel demand growth of just 2.8 per cent in April-May of FY2017 has also been a dampener because domestic industry capacity utilisation remained suboptimal, and large capacity ramp ups are lined up now, including JSW Steel's 3.7 mtpa brownfield capacity and Tata SteelBSE -1.30 %'s 3 mtpa greenfield capacity.

    While SGD regime has been extended till March 2018, the coverage of steel products under it is not as exhaustive as that under the MIP scheme.

Source: economictimes