Extension of Minimum Import Price (MIP) for the next two months is unlikely to
provide much relief to the Indian steel players, ratings agency ICRA has said. This is
particularly true for companies which have with a large presence in the flat products category.
Share of the 173 steel products under MIP in India's total steel imports were significantly
higher at 95 per cent in FY16 than that for 66 products covered under extended MIP at 29 per
cent in FY16.
On expiry of the six months validity of the minimum import price (MIP) levied on steel imports, government extended the MIP further by a
period of two months on August 4, 2016. As against 173 products covered by 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/tonne or roughly around 14 per cent of domestic HRC price as compared to the landed cost of imported HRC offers from
China. "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," Jayanta Roy, senior VP, ICRA said.
However, domestic CRC prices, which are not covered either under MIP II or SGD, are currently costlier by around $52/tonne or 9 per cent
of domestic CRC price than the landed cost of Chinese CRC offers. "CRC prices are thus likely to come under pressure in the coming
days unless international prices harden, or government initiates a different protective measure for CRC," Roy added. Historically, the
spread between CRC and HRC has been in the range of around $7080/tonne. If domestic CRC prices head southward to the import parity
price level of $547/tonne, its gap with domestic HRC price would narrow down to only around $35/tonne. This is likely to squeeze the
margins of CRC manufacturers. ICRA believes this will in turn exert pressure on domestic HRC prices as well.
Given the low steel demand growth of 0.4 per cent in Q1 FY17, down from 4.6 per cent in FY16, any increase in imports would pose
further challenges for the domestic steel players. The outcome of recent antidumping investigations initiated by the Directorate General of
AntiDumping and Allied Duties would thus remain a key factor determining financial health of domestic steel industry, the agency said.
Source: ET