Exemptions under minimum import price still a worry for steel companies

Suresh P Iyengar Mumbai | Updated on January 20, 2018 Published on February 18, 2016


Scope for importers to circumvent price notification, want more government monitoring, say manufacturers

The exemptions provided on steel imports under the minimum import price (MIP) still a pose significant threat to steel companies.

Of the 9.04 million tonnes of steel imported in the first nine months of this fiscal, the MIP does not cover about 6.5 million tonnes. This leaves scope for importers to circumvent MIP fixed between $341 and $752 a tonne on 173 steel products.

The measure excludes import of API (American Petroleum Institute) grade Hot Rolled Coil used for making pipes in oil and gas sector. Importers have to provide end-use certificate when they ship in API grade steel.

Seshagiri Rao MVS, Joint Managing Director, JSW Steel, said when the Centre specifies application of imported steel, the Customs department has to ensure that it is adhered to and going by past trends there could be import of half-a-million tonne of API grade steel this fiscal.

Incidentally, import of API grade steel was exempted under the purview of 20 per cent safeguard duty imposed in September. This led to 160 per cent increase in API grade steel imports over the last three months.

The imports of API grade steel have risen to 60,000 tonnes in January from 23,000 tonnes in November. Interestingly, there was no import of this grade in September as it is widely available in the domestic markets. The price of API steel has fallen by $70 a tonne to $318 a tonne during this period.

Imports this fiscal

Other items such as tin plate, spring steel, scrap, direct-reduced iron, hot briquetted iron are also excluded from MIP. The country has imported about 2 million tonnes of these items in first three quarter of this fiscal.

Similarly, there is exemption for imports under advance licence signed before MIP was imposed. In the last nine months there was import of 3 million tonnes under advance licence and on an annualised basis it could be 4 million tonnes.

Technically, 6.5 million tonnes of steel can still be imported without triggering MIP, said another steel company executive. This apart, line of credits (LoC) signed before implementation of MIP have been exempted, if the importer does not change the quantity, value and validity.

In anticipation of this restriction, traders have signed revolving LoCs that retain the quantity, value and validity but can be repeated for a particular number of times.

For instance, if a line of credit is opened for 2 million tonnes valued at $20 million for two years, under the revolving licence the importer can circumvent MIP by retaining quantity, value and validity and repeat the order any number of times in two years.

Rao said the MIP notification does not say how it will tackle revolving LCs which is a new instrument in the financial market.

“While the Government has done well by covering 80 per cent of steel imports under MIP, we should also consider the exemptions provided,” he added.

Published on February 18, 2016

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