Responding to pleas of domestic steelmakers for protection from cheap imports, the government on Wednesday raised the import duty on several categories of steel products by 2.5 percentage points.

This should bring some relief to the Indian steel industry that has been battling both weak domestic demand and a sharp rise in cheap imports.

But while the hike narrows, it does not bridge the gap between the prices of domestic and imported steel products. This should limit the benefit for domestic steel producers, say experts. Even after the duty hike, imported flat steel products will continue to cost around $80 per tonne less than domestic products, says Jayanta Roy, Senior Vice President, ICRA. According to Rakesh Valecha, Senior Director, India Ratings & Research, “While the duty hike is likely to have a moderately positive impact in the long term, any near-term benefit is less likely. What is more important is that structural problems, such as consumer spending and investment demand, be addressed for any meaningful improvement.” Indian steel consumption grew 3.1 per cent in fiscal 2014-15, much better than the 0.6 per cent growth in 2013-14, but it is still a far cry from the 6-10 cent growth in earlier years.

With world steel supply exceeding demand, global steel prices have been under pressure for the past couple of years. This has kept Indian steel prices also under check. The slowdown in China, the world’s largest steel supplier and consumer has been a major pain point for the industry. The country’s steel demand contracted in calendar 2014, the first time in almost 20 years. This has also led to a surge in cheap exports from China. Prices of Chinese steel products — hot rolled coils and rebars — which are exported have fallen 25 per cent and 17 per cent, respectively, so far in calendar 2015.

Indian steel makers have borne the brunt of this. Steel imports jumped 71 per cent year-on-year to 9.3 million tonnes in 2014-15, about 40 per cent of which came from China. The surge has continued in the current fiscal with imports expanding 55 per cent to 1.7 million tonnes during April-May 2015 compared to the year-ago period. With imports still remaining significantly cheaper than domestic steel, the hike in import duties helps, but only just.

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