Steel import volume for April at 17% lower than the previous year indicates that the steps taken by the government, specially MIP, have proved effective, although the full impact of the measure is likely to be felt in May. It must be appreciated that rise in global prices in the last 4 months has taken the sheen away from cheap imports and focus more on demand from the end-using sectors as the primary saving tool for rejuvenating the steel industry.
The disastrous experience for the industry in terms of surplus capacity, poor demand, low profitability and resultant unemployment in the last 2 years have also made us look afresh to all trade treaties, RCEP and FTAs. It is too early to say if the past events would bring us back to the multi-lateral trade treaties by delaying the ongoing process of negotiations in other forms of bilateral trade.
India continues to remain a member of the exclusive club that shows a positive outlook for steel along with Vietnam, Turkey, the US, North Africa and Iran. It is good to learn from the experience of other advanced countries where steel industry has become nearly saturated due to a multiplicity of factors. For instance, the UK, the Harbinger of Industrial Revolution in 1760 and associated with transfer of steel technology for our Durgapur Steel Plant way back in 1960s, poses a serious challenge for the survival of the steel industry.
There are genuine structural imbalances in the UK causing tough problems for steel demand. Mechanical machinery, electrical equipment, domestic appliances, railways and shipping transport segments have been experiencing negative growth with the sole exception of automobile sector. The slow growth in construction has led to a negative growth in industrial production in that country.
It is worth mentioning that in the UK the Steel Construction Institute (SCI) set up in 1970s was the foremost research institute to propagate the use of steel in construction. It was instrumental in popularising the application of steel in residential and office building construction and took the country far ahead in use of steel in construction as compared to other members of the developed league. SCI also provided the guidelines for setting up the Institute for Steel Development and Growth in India in 1996.
However, since 2012 things took a turn for the worse. GDP growth in the UK was hovering around 1.5-2.5%, but what was significant was that steel intensity of GDP in the UK was becoming the lowest among the other members of EU namely, France, Italy, Germany, the Netherlands, Spain, Poland and Hungary. The current apparent consumption of steel in the UK at 10.5 MT has been projected by WSA to grow to 10.6 MT in 2016 and 10.9 MT in 2017, only by 0.4 MT in 2 years.
Imports were rising at a higher rate compared to exports suffering from a volatile currency. It had led to a current account deficit of nearly 4.2% of GDP. The unemployment rate has crossed 5% bench mark. Steel products of the UK have become non-competitive due to high energy cess which is roughly 50% higher than in Germany. In addition the extra costs imposed by climate change policies have put additional burden on the industry. In spite of having cost disadvantages at every stage of production relative to its competitors, the UK could deliver steel at a lower cost in its local market for at least 50% of its product categories.
But cheap imports from China, South Korea and Turkey have made steel manufacturing and marketing from the UK rather difficult. May be suitable trade measures like anti-dumping, countervailing and safeguard duties against cheap import sources could have provided some temporary relief to the beleaguered steel industry in the UK including Tata Steel, but a steep decline in demand from the major end-using sectors have caused havoc and death knell for the industry.
While India needs public and private investment in urban and rural infrastructure, real estate, roads, railways, civil aviation and irrigation to boost up steel consumption, the industry is to continue its thrust on improving quality and reduce cost of production to become competitive. The government must support the industry with suitable trade measures to thwart predatory pricing from cheap imports and save the industry from similar experiences like in the UK.
Source :.financialexpress.com
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