Mumbai: India is emerging as the sole bright spot for global steel makers as brisk demand coupled with scarcity of raw material looks set to buoy imports by Asia’s third largest economy in the next two years, bucking a slowdown that has hit even top consumer China.
If India, the world’s No. 4 steel producer, retains its appetite for imports, that could not only plug gaps in demand, but keep steel makers elsewhere, particularly in Japan and South Korea, humming despite a fragile global economy.
India’s imports of finished steel products surged 39% to 3.34 million tonnes (mt) in the five months to August from a year earlier, the latest government data shows. Imports climbed more than 53% between April and July.
Besides lower world prices and delays in new projects, India’s imports have been boosted by poor supplies of raw material and lower capacity use, said Prateek Gupta, managing director of metal trader Ushdev International.
“All this indicates that India will be a forced net importer for at least the next two years,” Gupta said.
Steel imports in the fiscal year that began in April are likely to reach 8 mt, up 18% from a year earlier, said Sajjan Jindal, chairman and managing director of JSW Steel Ltd, India’s third largest steel maker.
At home, steel output growth slowed sharply to 4.5% in July from 16.5% a year earlier, government data shows.
Domestic steel demand in 2012-13 is expected to be about 80 mt against estimated output of 71-72 mt, forcing India to bridge the gap with imports.
India’s shortfall presents an attractive opportunity for China, Japan and South Korea, which are struggling with weak demand and huge inventories, steel makers said.
“The share of imports from Japan and Korea is rising mainly because they enjoy a lower import duty,” said Vikram Amin, an executive director at Essar Steel Ltd, which produces 14 mt of steel a year worldwide.
India cut its tax on steel imports from South Korea and Japan after signing free trade pacts with the two countries in 2010 and 2011, respectively, and they face a levy of less than 4% against the 7.5% others must pay.
China, the world’s largest producer of steel, whose crude capacity outpaces demand by around 200 mt, is also shipping some products to India to counter slower demand at home that has crumbled domestic prices 13% in 2012.
China’s biggest listed steel maker, Baosteel, has just halted production at a 3 mt-a-year plant in Shanghai as prices near three-year lows.
China is India’s biggest market for its iron ore, the key raw material for making steel, although Indian shipments have dropped sharply amid mining restrictions and export bans.
Alarmed by rising imports from Japan and South Korea, domestic steel makers have been urging the government to review trade pacts that require India to lower its import tax.
Imports were brisk between April and July. But the pace of overseas purchases is falling after June quarter suffered its slowest economic growth in three years, at just 5.5%, and car sales fell 19% in August.
But India’s economy is still one of the fastest paced in the world, and the government estimates it will grow 6.5% in the 2012-13 fiscal year, unchanged on the year.
Flat steel, used to make cars, trucks, machinery parts and consumer goods, forms the bulk of India’s imports of the alloy.
Red tape, corruption
India has struggled to exploit its vast reserves of coal and iron ore in the face of bureaucratic hurdles, corruption squabbles, archaic land laws and protests over the purchase of land for mining and industry.
Last month, the state auditor censured the Congress-led coalition government over coal mining concessions to power and steel companies without competitive bidding, potentially costing the treasury billions of dollars in lost revenue.
Projects delayed by these issues include a 12 mt steel plant planned by Posco and ArcelorMittal , a 6 mt steel plant of Tata Steel Ltd in the eastern state of Orissa, and state-run Coal India Ltd’s mine expansion in Chattisgarh.
The western state of Goa temporarily halted iron ore mining this month to check if operations were legal, denting domestic supplies. Karnataka, which has the largest reserves, continues to flip-flop on the issue of iron mining and exports, adding to steel makers’ woes.
“Most steel makers are working at less than 80% of their capacities due to erratic raw material supply,” said a Mumbai-based official working for a leading steel maker. Reuters