The Hindu Business Line : ‘No case for raising customs duty on imported steel’

Chennai, Nov. 22 The steel industry’s demand for raising the customs duty on imported steel (from 5 per cent basic, now) has left the user industry furious, which says “look at the profits they are making”. Steel producers had an exceptionally good run last year, with post tax profits of around a fifth of sales for companies that had captive mines.

The steel consuming industries’ peeve is that when the prices of raw material were on the rise the steel prices soared. But now, when raw material prices are on a free fall, the producers are stingy in cutting steel prices.

According to the Association of Indian Forging Industry (AIFI), over the last three months, iron ore prices came down from Rs 4,500 a tonne to about Rs 2,500 a tonne and coke prices from $750 a tonne to $450 a tonne. These together should have an impact on cost of steel making by about Rs 1,300 a tonne. Against this, steel producers have brought down their prices by about Rs 5,000 a tonne.

Prices of steel in the international markets have come down to $500 a tonne, while in India they are still at least $650.

Actively lobbying against this is the Indian forging industry. There are about 400 forging units in the organised forging sector with a capacity of 1.5 million tonnes and sales of about Rs 14,000 crore. The sector employs about 2 lakh people.

The President of the Association of Indian Forging Industry, Mr Vidyashankar Krishnan, spoke to Business Line about why the association opposes customs duty on imported steel. Excerpts from the interview:

What is your case against raising the customs duty on steel?

Prices in India are still higher than those in the rest of the world. Bringing in customs duty (and the resultant marking to market of local steel mills) will continue to maintain the gap. Unless steel prices in India are same or lower than those at the international levels, Indian auto component industry will continue to take a beating. If auto component exports come down due to uncompetitive prices, employment in the sector will be hit. Also, if steel prices remain higher than those in international markets, we will see a greater inflow of auto component imports, spelling doom from another front for the industry. Besides, steel prices have a big say in inflation. If the Government went ahead and altered the duty structure to suit the steel industry, it would be missing out on about 300 to 500 basis points of deflation potential.

Isn’t the steel user industry taking a narrow, self-centred stand by opposing the duty rather than seeing it as encouraging value addition within India?

What the user industry is asking is not a self-centred demand. Rather, we are only asking for rationalisation of steel prices equivalent to international levels. We are seeking a level playing field so that we are not at a disadvantage to international competition. As steel is a commodity, we believe our expectation is not unreasonable.

Don’t the steel producers have a point when they say the domestic steel industry needs to be nurtured and developed to be able to meet the country’s long term needs?

It’s a bit strange to hear this. I wonder why we didn’t hear of the nurturing of the long term need of the industry about 6 months back or even as late as 3 months. To reiterate, the forging industry is not seeking any subsidy or price sops, but rather want prices to be equivalent to international levels.

Well, six months back, the domestic steel industry was doing very well and hence did not require nurturing. Now, the prices have fallen and hence it needs a helping hand. What is strange about this?

Six months back, the Indian Steel Alliance claimed in a newspaper advertisement (Business Line, March 24, 2008) that they are competitive, even comparing landed prices of imported steel. Why should the steel industry be afraid of the same competition now?

Fact of the matter is they were competitive on costs but margins were excessively high, leading to high domestic prices. This is a fact which AIFI has been consistently and continuously presenting to all those who would listen. Six months back, steel mills all over the world were busy and one could not import steel easily.

In fact, the newspaper ad clearly said that the steel industry would pass on to the customers any decrease in raw material prices. Now, instead of doing so, the steel industry is harping on customs duty to protect their extraordinary margins. They very clearly intend to renege on their public commitment to reduce the prices in tune with reducing input prices.

Would you favour duty-free imports of forgings into India?

As things stand today, if duty-free imports of forging were allowed, it would really be a big blow for the industry which is already struggling to survive. However, we are certain we could take on competition comfortably, subject to getting a level-playing field on input costs.

Where do you see steel prices heading? At what levels would they stabilise?

Steel prices are heading south. As per our estimates, they could stabilise at around Rs 25,000 a tonne, give or take 10 per cent.

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