Big Picture. India’s steel exports hit by US tariff hike

The effect of the trade war unleashed by US President Donald Trump early this year is beginning to impact the external trade numbers of countries across the globe. An analysis of the effects of the import tariff hike by the US on India’s steel sector shows that while exports have taken a hit, domestic steel prices have not.

The US hiked import tariffs on aluminium and steel by 10 per cent and 25 cent,respectively, effective March 23. Within a few months, countries such as Japan and Thailand were exempt (partially or fully) from the hikes. But India could not get a relaxation despite considerable efforts to negotiate with the US.

However, nine months after the imposition of the new tariffs, there has been no significant direct impact on India due to the small share of our exports to the US. But there has been an indirect impact — steel-exporting countries, unable to export to US due to the steep tariff, have been dumping steel in India, changing the dynamics of the steel economy in the country.

Imports vs exports

Korea, Japan and China are among the top 10 countries that exported to the US in 2017. Due to the trade restrictions, these countries have now redirected their supplies to India and other neighbouring countries.

Imports to the US from these countries in the quarter ended September 2018 fell to 0.99 million tonnes (mt), 33 per cent down from the quarter ended March 2018. During the same period, imports to India from these countries rose considerably by 55 per cent to 1.58 mt.

Though overall imports dipped 6 per cent in the first half of the year over the previous year, India has become a net importer of steel for the first time after almost two years.

Rahul Prithiani, Director, CRISIL Research, listed a few other factors for the rise in imports from FTA (Free Trade Agreements) partner-countries such as Japan and Korea: sharp rise in auto-grade steel imports, driven by 10-15 per cent growth in automobile production during April-November 2018; and landed prices that were cheaper than prevailing domestic prices.

The uncertainties created in the global market, combined with robust demand within the country, have led to Indian steel companies increasing their focus on the domestic market. For instance, JSW Steel’s exports in the quarter ended September 2018 accounted for 17 per cent of its total sales, down from 26 per cent in the year-ago period. During the same period, Tata Steel’s export volumes, too, declined about 23 per cent y-o-y.

This has resulted in India’s total exports plummeting 22 per cent in the first half of FY19 to 4.24 mt from 5.45 mt a year ago.

“Contraction in exports was also driven by acquisition of assets by large steel players in the US and the European Union,” said Prithiani.

Domestic prices immune

Due to the hike in US import tariffs, international steel prices declined marginally for a while before recovering on account of favourable global demand for the commodity. International prices of HRC (hot-rolled coil) steel was at an average of $586 per tonne in April 2018, down from $594 per tonne in March 2018.

But it rebounded to $598 per tonne in June 2018 and came down to $577 per tonne in September 2018. The recent downtrend is on account of seasonal impact and may not be due to uncertainties in the trade.

Domestic steel prices remained steady in this period. Average domestic HRC steel price in April 2018 was ₹44,700 per tonne, a 2 per cent increase over the previous month, on account of healthy demand. Consumption in the first half of the year was 47.68 million tonnes, an increase of good 8 per cent y-o-y against a world average of 5 per cent.

“The meltdown in landed steel prices made imports into India cheaper,” said Jayanta Roy, Senior Vice-President, ICRA. Going ahead, he expects imports to come down if landed prices correct further below the floor price fixed by the government (around $485/tonne), when anti-dumping duty kicks in and makes imports costlier. However, if international prices remain at a level higher than the floor or the minimum import price, there could be opportunistic imports, depending on the international as well as the domestic price trend.

(Steel prices were sourced from CRISIL Research.)

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