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20per import duty recommended on steel products for 200 days

Temporary step, which is WTO-compatible, a bid to protect domestic industry from the sudden rise in imports

The Directorate General of Safeguards (DGS) under the finance ministry has suggested imposing a 20% safeguard duty on select steel products for a period of 200 days to curb cheap imports.

Such a duty is a temporary step and is imposed for a timeframe to protect the domestic industry from the sudden rise in imports. The duty is WTO-compatible, too.

“There exist critical circumstances, where any delay in application for provisional safeguard measures would cause damage which it would be difficult to repair, necessitating immediate application of provisional safeguard duty,” the directorate said in a notification on Wednesday.

The duty has been recommended for hot-rolled flat products which has seen a significant rise in imports from countries like China, Korea and Japan. Domestic steel companies have been struggling to stay profitable due to a pricing pressure from the cheap imports.

“Market share of imports has increased from 6% to 12% and, consequently, market share of the domestic industry has declined from 45% to 37%,” the notification said.

The DGS recommendation is pending a final determination by the directorate general.

It is an outcome of an investigation which DGS carried out based on a plea by Steel Authority of India Ltd, Essar Steel India Ltd and JSW Steel Ltd on 27 July.

The three firms together represent 50% of the domestic steel production and have been facing margin pressure due to weak demand and heavy imports.

The overall steel demand has been soft and grew at a meagre 4.6% in the April-August period, according to data from the joint plant committee (JPC) of the steel ministry.

Steel imports, however, have been rising at a faster pace. Total finished steel imports to India rose 50.8% over the same period on a year-on-year basis, shows the JPC data.

“The safeguard duty will help arrest a further fall in domestic steel prices but I do not expect steel companies to be able to hike prices as there is no demand. In case the duty is applicable to FTA (free trade agreement countries), imports from countries like Japan and Korea could decline,” said Goutam Chakraborty, research analyst at Emkay Global Financial Services Ltd. He, however, added that Chinese steel may still remain competitive in the domestic market.

The increase in cheaper imports have forced domestic steel firms to cut prices and avert a loss in market share. Hot-rolled steel prices dropped by Rs.3,000-4,000 a tonne in the April-June quarter, which brought down the cost difference between imported and domestic steel, Mint reported on 27 July.

Weak demand over the last couple of years have affected the steel sector’s financials, too. Only one in three steel firms listed on BSE Ltd is able to generate sufficient cash flow to pay interest on loans on time, Mint reported on 4 August.

According to Capitaline data, just 41 out of these 129 companies, which have collectively borrowed Rs.2.63 trillion, have an interest coverage ratio (ICR) above 1.5 times, considered a safe level while measuring a company’s ability to pay interest. The ratio is calculated by dividing a company’s earnings before interest and tax by its interest expenses.

HT Mint, New Delhi, 10th Sept. 2015

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