On January 10, the government imposed regulatory duty of 15 percent on wire rods, steel bars and billets. The move came on the back of demands from domestic integrated steel players for protection against what they termed to be "dumping of steel bars and billets by Chinese manufacturers".
Even as importers of steel bars, billets and wire rods decried the governments recent decision to impose a 15 percent regulatory duty on these items, members of the Pakistan Steel Melters Association called for further beefing up the RD from the current level to 40 percent.
Given the current strength of the local currency and relatively low domestic financing rates, imports are generally cheaper for domestic importers. The government would do well to use this window of opportunity to focus on promoting productive imports instead of higher non-productive imports whether billets, bars, wire rods or scrap.
While the decision to impose RD was aimed at protecting local integrated steel manufacturers from cheaper imports, the government also has a lucrative counter option available; letting in cheaper imports to help drive construction and infrastructure developmental projects.
Prior to imposition of this RD rate, imports of iron and steel had registered spike in recent months, outpacing the growth in imports of scrap as well as total metal group imports since October 2014. During the same period, metal group imports have also outpaced total imports.
While there is a higher incidence of scrap being converted into billets, bars and wire rod domestically since FY12 end; in recent months, scrap imports as a proportion of total metal group imports have stalled while iron and steel imports have risen as a proportion. Simply put, lower prices in China have coupled with rupee strength to make imports more lucrative than domestic production since October 2014.
The impact of the recent RD imposition should begin to manifest soon and the awaited release of import data for February will help to shed light on the same although a persevering impact will only be visible after at least a couple of months. Even if the chasm between imports of steel and iron and scrap persists, the government will have to choose between cheaper inputs and protection for specific segments of local industry. It would be prudent for government to assess the impact of the previous rate hike before considering any further changes to the RD.
Source: Business Recoerder
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