Steel pipe cos may shift production out of India

Steel pipe cos may shift production out of India
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First Published: Sun, Jun 01 2008. 10 11 PM IST

Lion’s share : India is a major exporter of steel pipes, particularly to companies in West Asia and the US such as Exxon Mobil Corp., Chevron Corp. and Saudi Aramco, and caters to one-third of global
Lion’s share : India is a major exporter of steel pipes, particularly to companies in West Asia and the US such as Exxon Mobil Corp., Chevron Corp. and Saudi Aramco, and caters to one-third of global
Updated: Sun, Jun 01 2008. 10 11 PM IST
Mumbai: Indian steel pipe makers, hurt by a 10% export duty, could shift their production out of the country.
India is a major exporter of steel pipes, particularly to companies in West Asia and the US such as Exxon Mobil Corp., Chevron Corp. and Saudi Aramco, and caters to one-third of the global demand.
Lion’s share : India is a major exporter of steel pipes, particularly to companies in West Asia and the US such as Exxon Mobil Corp., Chevron Corp. and Saudi Aramco, and caters to one-third of global demand
But with the tax, on top of a near 40% rise in steel prices in the past six months, steel pipe makers say they would need to make the pipes overseas to remain competitive.
“We were already planning to expand capacity of our Sharjah (UAE) plant to 300,000 tonnes per annum from 75,000 tonnes, but the export duty notification has made us expedite the plan,” Ashok Punj, managing director of PSL Ltd, said by phone. “We expect to complete the expansion in next 12 to 16 months.”
When the notification on the duty was issued, less than 2.5% of the company’s total orders were from exports. “But we plan to supply a majority of the export orders from our plants in those countries to retain competitive advantage,” Punj said. PSL has plants in Sharjah and the US.
“If this (export duty) continues over the long term, then one way to get around it would be to get to the market they are servicing... or being closer to those markets,” said Prasanto Sengupta, director of corporate finance at consulting firm KPMG. “I don’t see manufacturers immediately shifting base if they have huge capex in India, but if it (the duty) continues over a long term, they might just have to.”
On 10 May, the government, in an attempt to contain soaring inflation, issued a notification that brought 15 categories of steel products liable to pay a 10-15% export tax. The finance minister had announced the levies on 29 April. The companies are lobbying hard to get the finance ministry to roll back the duty on steel pipes, arguing that they import most of the steel used in making pipes and, thus, export could not have added to inflation.
“We did not believe that the government will impose such a high export duty on steel pipes,” said a senior executive with Welspun Gujarat Stahl Rohren Ltd. This person, who did not want to be identified as he is not authorised to speak with the media, said the duty gives steel pipe makers in Europe and Japan a competitive advantage over Indian firms.
“The contracts we have entered into with foreign companies are fixed, and do not give us an option to renegotiate for the price increase from the export duty,” he said. “If we are not able to deliver, we will have to pay a penalty.”
Steel pipe makers such as Jindal Saw Ltd and Maharashtra Seamless Ltd export 25-40% of their output, while Man Industries Ltd and Welspun export about 80% every year.
“We are already planning a plant in the US with a capacity of 300,000 tonnes per annum,” said K.G. Mantri, senior vice-president of corporate affairs at Man Industries. The US plant will be completed by June 2009, Mantri said.
The company plans to increase its focus on Indian markets if the export duty is not rolled back, Mantri said. He added that the company would have to renegotiate its contracts if the government persists with the export tax.
Demand for steel pipes is expected from West Asia and other Asian countries, which account for 45% of the global demand, followed by North America at 33% and Europe at 16%, according to industry experts. This demand is expected to grow significantly, and Indian companies are already considering capacity expansions. Jindal Saw plans to increase its annual capacity to 1.95 million tonne, or mt, by the end of 2008, from 1.25mt. Man Industries plans to increase capacity in India to 1mt by June from 800,000 tonne.
Baiju Kalesh contributed to this story.
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First Published: Sun, Jun 01 2008. 10 11 PM IST