India: Secondary steel makers bear brunt of imports, raw material crunch

Several units have shut shop in Karnataka, Odissa; others are struggling in Andhra, TN

Domestic steel-makers, already reeling under a raw material crunch, are feeling the heat of rising imports, aided by free trade agreements with countries like Japan and South Korea and export rebates given by China, which makes its steel exports cheaper. The worst affected are the secondary steel makers producing through the induction furnace route in Karnataka, Odisha, and West Bengal.

‘‘The threat of imports is a major concern; the first five months of this fiscal saw a 40% spurt in imports. Demand is slowing down in China and Japan. Imports at concessional duties, under FTAs, is hurting Indian steel-makers,’’ says the CEO of a steel maker, who didn’t wish to be identified.

Consider this: if steel is imported from Russia, it attracts a customs duty of 7.5%, but if the same is imported from Japan or South Korea, it attracts a duty of 3.1%. Domestic steel-makers say this differential is hurting them. Besides, China offers an export rebate of 9-13%. This makes Chinese steel cheaper by $72 a tonne, if one takes the ruling international prices of HR coils at $550 a tonne.
"Policy provisions related to concessional import duty to items from South Korea and Japan under CEPA is also instrumental in a significant growth in imports from these nations, currently in slowdown mode with supply outstripping demand," the Joint Plant Committee (JPC), Ministry of Steel, said last week while releasing the import statistics. Price consideration is another crucial factor influencing trends in imports with the relative strength in domestic prices vis-a-vis import prices, the JPC added.
Distress is building

The rising imports and poor demand has added to the troubles of the secondary steel producers, who were already crippled by a severe raw material crunch (iron ore) and rising cost of power. ‘‘In Karnataka, several secondary steel producers who produce steel through the induction route have shut shop,’’ says an industry expert. There are reports of several units shutting up in Jharkhand, Odisha and West Bengal.
No wonder, iron and steel companies had the largest chunk of debt that has been referred to the corporate debt restructuring (CDR) cell as on June 30, 2012. Thirty four of these companies who are in the CDR cell had an aggregate debt of Rs 39,714 crore, accounting for 24% of the total debt that is being restructured. The quantum of the debt could increase, if imports increase in the same pace.
Take the situation in Karnataka. Secondary steel-makers, producing through highly energy-intensive induction furnace route, are mainly concentrated in and around Bangalore in Karnataka. Today, there are hardly 4-5 induction furnaces in operation in Karnataka as against about 15-20 units about 15 years ago. In South India, Karnataka was the only state to produce steel through the induction furnace route and today, it is on the verge of losing its presence. The installed capacity has declined from about half a million tonnes per annum to less than 5,000 (five thousand) tonnes per month.
There are some new projects in the pipeline, expected to come up in Bellary district.  Steel-makers producing through the induction furnace route mainly make ingots and billets for the construction industry and castings for engineering industries. Other steel producers like JSW Steel, BMM Ispat, MSPL, and Xindia are among those that use sponSOCIETY