The Hindu Business Line : `US scrapping of steel tariffs a signal for other markets'

Over a year since the US imposed high steel tariffs, Dr J.J. Irani, Director, Tata Sons, and Chairman, Indian Steel Alliance, appears vindicated in the stance he took in March 2002. "The US action is totally contrary to the WTO norms, and most of the affected countries will take recourse by applying to the organisation.''

"It is a very protective step towards the US's rather high-cost steel-making operations,'' he had told Business Line, just after the tariffs were announced. Today, on the subject of whether the world's biggest economy correcting its tariff position sends a signal to other markets, he maintained his original line, "No, the US action was unfair and untenable in the first place, and the WTO gave the expected ruling.''

"The US had obviously not anticipated the extent of opposition. They had little choice but to withdraw the unfair trade practice.''

Mr B. Muthuraman, Managing Director, Tata Steel, welcomed the lifting of steel tariffs. "It is expected to create a positive atmosphere in the global steel trade as it represents a step towards the freeing of international trade from protectionist barriers.''

"This is expected to provide a positive impetus to pricing positions. However, in view of the fact that prices in the US have lagged behind other regions (most notably China), it remains to be seen how much steel actually finds its way to the US.''

Asked if he anticipates any non-tariff barriers in the US licensing and monitoring system, Mr Muthuraman said, "The situation is not clear yet, this needs to be analysed further over the next few weeks.'' Notwithstanding the softening of the dollar, India remains an attractive source of good quality steel for the US as the dollar has weakened against most currencies. Therefore, vis-à-vis other countries, India is unlikely to be at a disadvantage.

But according to Mr Muthuraman, the scrapping of US steel tariffs "certainly sends a signal to the other major economies — the European Union, China and even India. The focus will now be on these major consumers of steel and other products to lower barriers and facilitate freer trade. In particular, China may review the quota system which they had instituted after the imposition of barriers by the US.''

The US is one of the big three steel consuming regions worldwide, along with China and the European Union. Together with its two NAFTA partners, the US consumed roughly 105 million tonnes of steel in 2003. This is expected to touch 108 m.t. in 2004. About 15 per cent of the US consumption is fed by imports.

Tata Steel has been maintaining a presence in the US market by exporting galvanised products, about 30,000 tonnes of it per quarter. The stock market's response to the news of US steel tariffs being scrapped was muted. Price variation was limited in leading steel industry stocks, Tata Steel and Jindal Iron & Steel Co (Jisco), both shedding by around Rs 10 each by Friday's close compared to the price levels on Wednesday. The message for Indian steel from the US decision need not end with stock market disinterest. Strangely, there are contemporary parallels between the US move and the Indian steel situation. For instance, political considerations are said to have swayed President Bush's loyalties away from protecting steel manufacturers to freer steel access for the user industries.

India has a rising trajectory of domestic steel prices, consuming sectors that have been clamouring for lower import duties or lower steel prices and an election year looming ahead in 2004. Come January and the prices of leading steel-based products like automobiles are set to revise upward. So, is there something for the Indian steel industry to note in the US President's decision?

"Domestic prices in India had steadily declined for three years till mid-2002. In the past year, these prices have recovered to their earlier levels,'' Dr Irani said. Mr Muthuraman seemed, trifle thoughtful, saying, "It is expected that this issue will remain in the limelight"However, it needs to be understood that steel prices even today are significantly below historical highs. It is well known that the steel industry is cyclical in nature and market prices at any particular point of time will be governed by forces of demand and supply, like in any other industry.''

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