MIP may Pose Problems for Secondary Steel Sector
One of the biggest talking points over the last couple of months have been the government’s proposed move to impose a minimum import price (MIP) for steel. The increasing electricity costs, the rapidly falling price of steel and the interest burden are already a problem for the secondary steel sector and they are beginning to feel the pinch an MIP would put on the already troubled industry. According to reports one of the first ways it will impact the industry is an increased defaulting on loans coupled with significant job losses. The Bank of America Merriyl Lynch put out a report recently that states that out of the total Rs. 2.8 lakh crore of NPAs in the steel sector, Rs. 1.95 lakh crore is with Tier 2 mills and the unorganized sector.
While the steel sector has pinned their hopes on an MIP to revive the industry’s fortunes, the secondary steel industry is at odds with the idea. EEPC, the Engineering Exports Promotional Council, has gone on record stating that imposing a minimum import price would have a seriously debilitating effect on the already declining export figures of the sector. The imports saw a decline of 15% in the first nine months of fiscal year 2014-15, these figures have continued their listless performance even now.
Most steel manufacturers are of the opinion that while MIP is a good move it should be made keeping in mind that it shouldn’t harm the secondary steel sector. Iron production has been only around 18 mt (million tonne) with a capacity utilization of only 35% in the last 2-3 years. The overall capacity of the domestic steel industry of 105 mt, 54% capacity lies with the secondary steel sector, with the tier-II and local steel units. One of the best things that the government can do to ensure the survival of some 2,000 secondary units which are in operation, is to make available iron ore and coal on a consistent and affordable basis. Pricing mechanisms for raw materials should be put in place in keeping with the export parity. With exports declining, it is getting more and more difficult to produce steel consistently.
Special steels that need to be imported, like clad steel and special grade boiler steel, among others, will also be adversely affected if MIP is not imposed in a well thought-out manner. However, no decision has been taken about the MIP as of now. The Commerce Secretary for the Government has said that as of now no decision has been taken on this issue.
Some of the secondary units like, slab re-rollers for instance, use continuously cast slabs, not readily available in the country. Currently, slabs worldwide are available at a very reasonable price range between US$ 220-250 f.o.b (free on board), facilitated by the dip in iron ore, coking coal and scrap prices. These units depend on imports and if a MIP higher that the current import price is imposed on slabs it will deal a vital blow to their raw material costs, the SIMA official said. Incidentally import of slabs accounted for 3 lakh tonne out of India’s over-9 mt of steel imports last year.