Commodity Analysis

How US import tariffs could impact India

Satya Sontanam | Updated on June 03, 2018 Published on June 03, 2018

The US has decided that Canada, Mexico and the European Union will no longer be exempt from import tariffs, and has slammed them with 25 and 10 per cent tariffs on imports of steel and aluminium, respectively, effective June 1.

The impact of this action on India cannot be disregarded. Though trade of steel and aluminium between India and the US is low compared with US’ trade with countries such as Canada, Mexico and Germany, it could have an indirect impact on Indian exports as well as domestic prices of these metals.

The LME (London Metal Exchange) prices of aluminium have not reacted much to the US’ decision. And, the impact on steel prices will be known only in due course of time.

Threat of supply glut

For instance, when the US, the world’s largest importer of steel, reduces imports from Canada and Mexico — which together contributed nearly 26 per cent of the total steel imports to the country (9 million tonnes) in 2017 — there could be an over supply to that extent in the exporting countries, which has to be sold to other customers.

If this oversupply is dumped into any of the countries to which India exports, there could be an adverse impact on India’s exports.

India was a net exporter of steel in FY-18 with exports at 9.62 million tonnes, a growth of 16.7 per cent from the previous year, thanks to global recovery. Italy has been India’s lead export market, accounting for 1.24 million tonnes, or 13 per cent of the total export of finished steel, during FY-18.

Dumping of excess supply into India at cheaper prices can also adversely impact the domestic players.

Pressure on prices

Further, the excess supply of steel globally might exert pressure on the prices of steel and aluminium which are now on an upward trend. With increasing prices of coking coal and alumina (the key raw materials of steel and aluminium), any reduction in realisations will hurt the profitability of domestic metal companies.

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