Steps by India to protect its large steel makers from a flood of cheap imports could end up closing scores of small, local firms that process the metal, industry analysts and executives said.
These processors currently buy imported steel at up to 20 percent below India's pricier, domestic steel, turning it into finished steel products for industrial use.
But after months of lobbying by its largest steelmakers such as JSW Steel Ltd and Tata Steel Ltd, India last month raised duties on some steel imports by up to 2.5 percentage points, with more increases expected.
India's steel imports had jumped around 70 percent to over 9 million tonnes in the year to end-March, with a surge of cheaper purchases from China accounting for about a third of the total. Imports soared 55 percent in April-May. The duty hike, along with proposed steps to tighten quality controls on steel imports, should curb shipments into the country this year, industry experts said.
While that should help large steelmakers, it will pile more pressure on small steel processors, already grappling with faltering demand as the real estate sector slows. Often family-run, these firms account for almost 60 percent of the India's overall steel sector, according to one industry body.
"If imports get reduced, the integrated steel mills will start charging higher prices, irrespective of international price trends ... secondary steel producers will not be able to survive," said Mohan Gurnani, President of the Federation of Associations of Maharashtra, which represents over 750 small associations and traders.
Steel ministry officials did not immediately respond to requests for comment.
EARNINGS BOOST?
Morgan Stanley estimates that the 2.5-percentage point duty hike could potentially boost Tata Steel earnings per share by 14 percent next year, Steel Authority of India's (SAIL) by 33 percent and JSW Steel by 30 percent.
"Import orders should reduce meaningfully from here as traders will become apprehensive of further increases in duties in some shape or the other," the bank said in a note.
India's largest steelmakers have been badly hit by high debt, interest costs and low appetite. But demand prospects are improving as the country starts a major urbanisation drive under Prime Minister Narendra Modi.
Indian steel consumption rose 7 percent in April-May percent, after growth of 3 percent in the fiscal year that ended in March.
The World Steel Association (Worldsteel) expects Modi's plans, including building 100 new 'smart' cities, to spur steel demand by up to around 6 percent this year..
Most analysts now expect Indian steel prices to remain steady, or rise slightly especially if the rupee weakens further, making steel imports more costly.
Source:- economictimes.indiatimes.com
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