Engineering Goods Exporters Not Happy As Steel Mills Raise Prices
Hot rolled steel moves along the production line at a steel mill. (Photographer: Henrik Kettunen/Bloomberg)  

Engineering Goods Exporters Not Happy As Steel Mills Raise Prices

While India’s steel mills have finally seen prices rise, showing recovery from the economic disruption caused by the Covid-19 lockdown, engineering exporters aren't happy.

“Against the backdrop of restrictions on imports from China, Vietnam and South Korea, Indian steelmakers have raised the prices across different product categories, making the raw material costs for user industries sky-high and leaving the engineering exporters non-competitive in the international market,” Mahesh Desai, chairman at Engineering Export Promotion Council of India, said in a media statement.

The government, according to the statement, imposed anti-dumping duty in the range of $13.07-173.1 per tonne on imports of certain types of steel products from three countries for five years. Steel firms then increased the prices.

  • Hot-rolled coils became costlier by Rs 700-750 a tonne on an average in July.
  • Cold-rolled coils prices rose Rs 500-550 per tonne.
  • Steel pellets turned costlier by Rs 300-350 a tonne, while prices of iron ore fines and lumps rose Rs 200-250 per tonne.

“In the manufacturing sector, the protection against imports is largely accruing to steelmakers at the cost of engineering industries, particularly those in the MSMEs (micro, small and medium enterprises),” Desai said. “The small firms have suffered the most under the Covid-19 impact.”

That prompted the apex body of engineering exporters—who contribute more than 25% to the entire basket of Indian exports—to seek immediate intervention of the government to ensure availability of steel at the export parity price for firms in the MSME segment as this is the “question of their survival in these difficult times”.

Seshagiri Rao, chief executive officer at JSW Steel Ltd., however, said steelmakers at a Ministry of Commerce meeting held early this year had committed to supplying steel to engineering firms at export prices, But in return sought the 4% export benefit extended to such firms, which will still be lower than the price of imports, he said.

It’s only in the uptrend of steel prices does the industry voice against the protectionist measures but remains silent when the steelmakers are bleeding dry, Rao told BloombergQuint.

India’s steel mills suffered as the lockdown restricted people’s movement and halted production. The slump in demand for the alloy deepened as new construction and purchases of cars and houses were delayed, causing prices of the alloy to fall. Industry leader JSW Steel reported its first loss in more than six years in the quarter ended June.

While Desai agreed that mills have committed to supplying steel at export prices, extending the export incentive seems uncertain at this point since the Directorate General of Foreign Trade for the last one month has not been accepting applications under the Merchandise Exports from India Scheme from exporters availing tax incentives.

The DGFT, on July 23, blocked the MEIS module from accepting new applications for shipping bills with let export order—final procedures of export customs clearance—beginning April 1, 2020, to limit the issuance of any more scrips. In fact, Desai told BloombergQuint that the benefits under the MEIS have been capped at Rs 9,000 crore against Rs 50,000 crore claims made for 2019-20.

“Engineering firms just ask for 1 million tonne of steel at export prices versus 100 million tonnes produced in the country,” he said. “If these issues aren’t ironed out for the industry, several jobs would be at stake, export obligation will be unfulfilled and more MSME engineering firms will have to shut down.”

According to be Madan Sabnavis, chief economist at CARE Ratings, fixing the supply-side issues will not be an adequate solution for the sector and the economy overall, since demand remains weak in global markets and is unlikely to recover until there seems to be a revival in the investment cycle. And issues like higher raw material, lack of manpower or logistic constraints are more of a supply-side issue, he said.

Priyankar Biswas, research analyst at Nomura, said a 10% change in price of steel, aluminium and copper would mean 0.73% impact on gross margin for companies like KEC International and little higher for Larsen & Toubro Ltd. as these firms have more than 50% contracts at fixed prices. For other engineering companies, Biswas said, this will be relevantly pass-through. And domestic steel prices are still trading below landed cost from countries like Japan and Korea with which India has free trade pacts, he said.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.