There has been a steady increase in steel imports since April, increasing every month till August.

By itself that was not a concern as initially exports were also increasing and we were net exporters of steel.

Since June, however, that has changed and July and August not only saw imports step up in absolute terms, but also exceeded exports (see chart 1), according to data on finished steel from the Joint Plant Committee.

That raises a concern whether steel imports are again posing a threat to the domestic steel industry.

One reason for this situation is that domestic consumption has tapered off, after a good start in 2017.

That has tempered the enthusiasm of mills to produce more. Recent months have seen consumption improve but this needs to be watched to see if it sustains (see chart 2).

August turned in a growth of 4.6% in consumption but production rose by only 2.3%.

Another reason would be the price situation.

For instance, Indian mills are quoting prices for hot rolled coils at Rs48,500 per tonne, whereas the landed price of imports in Delhi is around Rs47,000 per tonne, says Puneet Paliwal, consultant at research and consultancy firm CRU Group.

That has given imports an edge and anti-dumping duty is of little help; the reference price for hot rolled coils was fixed at $489/tonne, but imports are priced at $590/tonne cfr (cost and freight). A strong rupee also gives a helping hand to imports.

India’s steel exports, too, have increased in recent months.

Paliwal attributes this to China’s move to cut polluting steel output, at a time when its own demand is growing. That has meant more of its steel getting consumed within the country even as output has tapered.

This has seen Indian mills jump into the gap left by China in some export markets.

Viewed on its own, a rising trend in steel imports can be a worry. But viewed in the context of rising prices and steel producers capitalizing on the price differential, it does not seem like a lasting shift.

Paliwal expects that Chinese production will revive and exports will increase. That could then put pressure on global steel prices. When that happens, Indian producers may turn their focus on capturing a bigger share of the domestic market.

Already there are signs of why that can happen. China’s steel output is expected to increase by 3-5% in 2017, despite smaller outdated mills closing, according to a Reuters report. Larger mills are producing more steel, encouraged by rising steel prices. Last week, Thursday saw Chinese steel and iron ore futures fall, as China’s steel output hit a record high in August, beating its July record, according to another Reuters report.

At present, Indian steel mills are in a good position as their realizations have improved and consumption is trending up.

Exports provide a hedge against a slowdown in domestic consumption. Since prices are responsible for much of the good tidings for domestic steel-makers, that becomes the main risk as well.

Watch out for a sharp revival in China’s steel exports, as that can put pressure on prices and affect the profitability of steel mills.

A sustained improvement in consumption, however, will help domestic steel mills.