NEW DELHI/MUMBAI (TIP): A day after devaluation of the Chinese yuan, the government on August 12 announced a 2.5%increase in customs duty on flat and long steel products, amid a growing clamour for protectionism from the metal industry, which is passing through a rough phase due to a crash in global prices and over capacity in countries such as China. Several companies such as JSPL and JSW have reported loss in the last quarter and the government is worried that bank loans may be hit due to the adverse financial health of top-notch companies. Along with power and road, steel is a sector that lenders are watching closely as they fear a rise in non-performing assets.
Although the import duty has been raised on several steel products, the industry is demanding more protection, citing surge in import from China and South Korea, with which India has entered into a free trade agreement.
“It is not sufficient to check the surge,” said a senior executive in a Delhi-based company. Steel industry executives believe that the yuan devaluation will result in further imports from the world’s biggest producer of steel and aluminum.
“The devaluation of the Chinese yuan appears to be a step taken to counter the slowdown in their domestic market and stimulate exports. We have to ensure that India is not the dumping ground as we have seen recently in the steel market. Indian industry suffers from relatively high interest rates and logistics costs compared to international players. The government must ensure fair play domestically and provide global competitiveness support,” said Firdose Vandrevala, executive vice chairman, Essar Steel India.
Chinese steel shipments surged 27% to 62.1 million metric tonnes, while aluminum shipments rose 28% to 2.9 million tonnes in the first seven months of the year, the highest ever for the period, and two-thirds of the record 93.8 million tonnes in 2014. India witnessed a sharp 57% jump in import of steel during the April-June quarter, of which more than a fourth came from China alone. Japan and Korea also saw their shipments to India increase by 100% and 50%, respectively, during the period.
China’s export of steel products was 9.7 million tonnes in July, near the record 10.3 million tonnes seen in January. Steel futures in Shanghai have slumped 32% in the past year and aluminium prices declined 24% on the London Metal Exchange (LME).Seshagiri Rao, joint managing director at JSW Steel, India’s third-biggest steelmaker, believes that devaluation of yuan will further sharpen the ability of Chinese steel companies to export to India as they are desperate to export steel at any price. China is by far the world’s largest steel consumer and producer, accounting for about half of the world’s output.
JSW Steel shares fell 2% to close at Rs 878, while JSPL shares fell 6% to close at Rs 77 in a weak Mumbai market on Wednesday. Similarly, Vedanta Ltd shares fell 8% to Rs 114, while Hindalco Industries shares fell 7% to close at Rs 96.