2017 expected to bring in more gains for steel sector

Calendar 2016 was a good one for the steel industry and the year ahead looks promising as well, judging by the improvement in consumer industries. A key positive for steel prices was China’s pledge to start cutting down on its capacity, and more importantly, backing it with action.

Early last year, China had said it would reduce steel production by 150 million tonnes by 2020. Analysts were skeptical. Naturally, they were in for a pleasant surprise when the country cut 68 million tonnes of capacity by November, against the targeted 45 million tonnes. Chinese steel producers too benefitted as prices jumped 60 percent.

A hostile approach by other countries too would have hastened China on the path of production cut. India, Europe and USA, the main markets for China imposed import duty restrictions making its steel products uncompetitive.China is expected to need more steel at home this year, which means rival producers in other countries can heave a sigh of relief. Construction activity in China has gained momentum, resulting in 87 percent of steel being consumed locally. Steel inventory levels in China is down to record lows of 8.2 percent of production in November. China with nearly 50 percent of world production dictates which side the market will move. China’s increased captive consumption is a big relief for Indian steel manufacturers, which have enjoyed a good run in calendar year 2016.

Record production were announced by some steel companies. Essar Steel recorded its highest ever steel production with a 61 percent quarter-on-quarter growth of 1.48 million tonnes of flat steel in December 31, 2016 quarter. Reports say that Indian steel production increased by 10.5 percent in the first nine month of the current fiscal. Indian steel industry however, faces headwinds going forward.

Japan has dragged India to WTO against steps on iron and steel imports policy. The government had imposed minimum import price (MIP) for steel in order to prevent cheap imports, which were touching almost 1 million tonnes every month. The move not only prevented imports but allowed steel mills to increase prices and also export. Imports of steel fell 38 percent and exports increased by 60 percent in 2016. Since it was first imposed in February 2016 for a six month period, MIP was extended thrice for two months. The latest extension will expire in February 4, 2017. With Japan, the situation is tricky as the UPA government had signed a treaty with the country in 2011 to allow easy access to Indian market.

Though the Indian steel industry has asked the government to take it out of the treaty, it cannot be done unless both the countries agree to it. This would be a delicate situation as India has over the past few years through its look-east policy been leaning towards Japan for investments. However, the government has cut down the number of products under MIP from 173 products to 19 presently. It is moving from imposing MIP to the more WTO compliant anti-dumping duties as it gathers information of cost from manufacturing companies.