©REUTERS/Mukesh Gupta
©REUTERS/Mukesh Gupta

The Board of Safeguards has upheld the recommendation of the Directorate General of Safeguards (DGS) for imposition of a 20% safeguards duty on certain steel products to protect interests of the domestic industry, say sources.

Last week, DGS had recommended a “provisional safeguard duty at the rate of 20% ad valorem for 200 days, which is considered to be the minimum required to protect the interest of the domestic industry”.

The Board of Safeguards has approved the recommendations of the DG Safeguards, sources said.

Safeguard duty is a WTO-compatible temporary measure that is brought in for a certain timeframe to avert any damage to a country’s domestic industry from cheap imports.

After the recommendation of the board, the Finance Ministry will issue a notification announcing the duty hike.

DGS examined the application from major steel producers — SAIL, Essar Steel and JSW Steel — and found that “prima-facie increased imports of (certain kinds of steel) have caused or are threatening to cause serious injury to the domestic producers…”

The domestic steel producers had complained of a surge in imports of steel products like hot-rolled steel and other variants from China, Korea, Japan and Russia.

The three players, representing 50% of the domestic production, had moved DGS, for imposition of the levy on imports of hot-rolled flat products of non-alloy and other alloy steel in coils of width of 600 mm or more for four years.

The domestic industry, DGS said, has requested imposition of provisional safeguard duty in view of a steep deterioration in the performance of this industry in view of the import surge.

According to DGS, the market share of domestic producers has been declining since 2013-14 and is likely to fall from 45% to 37% in 2015-16.

The steel producers are seeking the safeguard duty as it would also cover imports from countries like Japan and South Korea, with which India has free trade pacts.

Last month, the government had hiked import duty on base metals, including iron and steel, by 2.5% in a move aimed at helping domestic players battling cheap Chinese imports after the currency devaluation by China.

The imports increased to 33,79,360 tonnes in 2015-16 (annualised), from 12,92,099 tonnes in 2013-14. The percentage of import with respect to domestic production rose to 13%, from 5% during the period.

In June, India imposed anti-dumping duty of up to $316 per tonne on imports of certain steel products from three countries, including China, to protect domestic producers from below-cost in-bound shipments.

The proposed 20% safeguard duty on imported steel is expected to provide relief for the steel sector which is struggling due to cheap imports from China and the countries with which India has free trade agreements, says India Ratings and Research (Ind-Ra).

The proposed duty of 20% would be applicable on import of hot-rolled flat products of non-alloy and other alloy steel with a width of 600mm or above.

The safeguard duty on hot-rolled coils (HRC) would benefit the integrated steel producers (ISPs) only in the short-term as it is likely to be applicable for only 200 days.

Ind-Ra estimates that the landed price of HRC imported from China will be higher than the domestic steel prices by Rs 2,000 per tonne.

This will be in stark contrast to the present situation where imported HRC is cheaper by Rs 2,000 per tonne than domestic HRC. This will also provide headroom to domestic steel producers to increase their prices and volumes, provided Chinese players do not reduce their prices further.

The safeguard duty is superior to the import duty as it is applicable to all nations unlike the import duty which excludes countries falling under free trade agreements.

The higher safeguard duty would benefit the ISPs, but negatively impact the companies involved in cold rolling and annealing of HR coils. However, the players could circumvent this by importing HRC with some value addition, Ind-Ra said.

HRC has been one of the major products produced domestically and its import has hurt the domestic steel industry. Out of the total steel imports of 9.3 MT in 2014-15, HRC accounted for nearly 25 per cent.

The country’s import of iron and steel rose 58 per cent during April-June 2015. The sector’s contribution to stressed advances stood at 10.2% of the total advances at end-December 2014 and is among the top five sectors with stressed loans in the system.

Steel imports have increased primarily from China, Korea and Japan. While the imposition of import duty of 12.5% applies to China, it does not apply to Korea and Japan, with which India has bilateral free trade pacts.

Flat steel is used in various industries such as automobiles and consumer durables and the safeguard duty would mean higher costs for the end-users of these products. Also the 200-day duty will not solve all the problems the industry is facing, but will provide temporary relief, Ind-Ra added.