In ICRA’s view, the extension of MIP for the next two months is unlikely to provide much relief to the Indian steel players, especially those with a large presence in the flat products category, given the fact that the share of the 173 steel products under MIP I in India’s total steel imports was significantly higher (~95% in FY2016) than that for the 66 products covered under MIP II (~29% in FY2016).
On expiry of the six months validity of the minimum import price (MIP) levied on steel imports, the Government of India, on August 4, 2016, extended the MIP further by a period of two months. As against 173 products covered by the MIP, imposed in February 2016 (MIP I), the recent notification (MIP II) covers only 66 steel products under the extended MIP scheme. Notable exclusions in the list are hot rolled (HR) and cold rolled (CR) flat products with width of more than 600 mm and other alloy steel products such as boiler quality and high pressure steel.
ICRA estimates that for HR flat products not covered under the MIP II scheme, domestic prices are currently trading at a discount of around US$70/MT (~14% of domestic HRC price) as compared to the landed cost of imported HRC offers from China. According to Mr. Jayanta Roy, Sr.VP, Co-head Corporate Sector ratings, ICRA Ltd, “ the Safeguard Duty is providing some relief to the domestic HRC producers and is likely to keep the overall imports under check in the immediate term.”
However, domestic CRC prices, which are not covered either under MIP II or SGD, are currently costlier by around US$52/MT (~9% of domestic CRC price) than the landed cost of Chinese CRC offers. Therefore, “CRC prices are likely to come under pressure in the coming days unless international prices harden, or the Central Government initiates a different protective measure for CRC,” Mr. Roy added. Historically, the spread between CRC and HRC has been in the range of around US$ 70-80/MT. If domestic CRC prices head southward to the import parity price level of US$ 547/MT, its gap with domestic HRC price would narrow down to only around US$ 35/MT. This is likely to squeeze the margins of CRC manufacturers, which ICRA believes will in turn exert pressure on domestic HRC prices as well.
Amidst an anaemic steel demand growth of 0.4% in Q1 FY2017, down from 4.6% in FY2016, any increase in imports would pose further challenges for the domestic steel players, and hence the outcome of the recent anti-dumping investigations initiated by the Directorate General of Anti-Dumping and Allied Duties would remain a key monitorable for the financial health of the domestic steel industry.
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