Safeguard duty on HRC import to change steel market dynamics in India
The news of imposition of 20% ad valorem safeguard duty on import of HRC in widths above 600mm for 200 days has brought cheers among Indian steel mills and analysts are revising their EBITDA forecasts as steel shares are spiking, buyers are edgy about the impending price hike and importers are looking to find ways to keep their business viable and handle the cargoes in transit. Interestingly now imported CR will be cheaper than HR provoking end users to change their buying pattern.
As per JPC’s MIS for FY 2014-15, HRC production for sale was 20.806 million tonne while import and export were 2.043 million tonnes & 1.104 million tonnes respectively. As per report, JSW had the largest market of 37.8%% followed by TATA Steel at 21.5%, SAIL at 17.7%, Essar at 5.7%, JSPL at 0.9% and others at 16.4%
Buyers are anxiously awaiting the move by Indian steel mills for hiking domestic prices. It is understood that some producers had already reduced their rebate structure in month beginning to improve their realization by about INR 500 per tonne and could further go for similar hike.
But, Indian importers are likely to find some quick solutions. The following scenarios could emerge for various HRC importing segments
1. Standalone Cold Rollers and Coaters - They are primarily dependent on exports of coated items and are unlikely to get effected as they could continue to import HR at zero duty against advanced export commitments, as it is understood that the same is not covered under safe guard rules. And for their domestic exposure, they could jolly well switch to importing CRFH, which is currently priced at USD 320-325 CFR India. Considering their costs of USD 20-25 for HR to CR conversion, their implied HRC cost would still be around USD 300 which is not going to make a structural shift in pricing dynamics for downstream products. In other words, chances of surge in imports of CR is likely
2. Tube Makers - As the safeguard duty is applicable on HRC with width above 600mm, tube making segments could resort to imports of slit coils to avoid safeguard duty. But it seems that VAT rebate in China is applicable for widths above 600mm and thus Chinese steel exporters need to find a way out. Indian tube mills could also resort to import of API 5L Gr B / X42, which is exempted from safeguard duty
3. Trade Segment – As the majority of structural grade HR was feeding numerous CTL centers, traders could resort to importing cut sheets instead of coils or import of API 5L Gr B / X42 to keep their CTL units running. Traders in market will shift also towards CRCA imports for trading purpose. In many applications where HR and HRPO had replaced CRCA, customers will revert back to CRCA usage. Since most of capacity of CRCA is with integrated players, they will be worst affected on this account.
4. Standalone CR Mills
However, an investment in state of the art standalone CR mill in Western India by a global steel giant would be hit hard as far as its CR sales from own mill is concerned and they could resort to import CR and sell to their client. However while they could restart importing CRFH for feeding their galvanizing mill, they need to find a viable solution to run the CR mill in India
The safeguard duty is applicable for all cargoes where the shipping bill has not been filed with Indian customs. Although the imposition of safeguard duty was in offing and market players were aware, the import deals where LC’s have been established and materials produced / shipped would become headache for both overseas steel mills as well importers. Indian importers could also attempt to replace their deals with CRFH etc wherever possible
Clarity is yet to emerge on how the safeguard duty would be calculated by customs. While some opine that it will be on assessable value (CFR Rate + 1.125% Marine Insurance + 1% Landing Charges) some say that it will be calculated on CFR Rate plus import duty, a difference of about USD 10 per tonne
Lastly, with Tata Steel Kalinganagar capacity of 3 million tonne likely to come on stream by this year end and also chances of struggling domestic HR producers increasing production levels, curbing of 1.5-2 million tonne HRC import may not be sufficient to take care of excess supplies.
On the other hand on a long term perspective, HR exports from India will become extremely difficult since in all traditional markets for Indian manufacturers, we can expect a very severe competition from China as Chinese steel mills would need to push more volumes with exports to India getting blocked and CFR price levels dipping further
Source : Strategic Research Institute