Recommendations for Steel industry

24 Nov 2019

India’s steel sector grew at around 6.8% in the April-June 2018-19 quarter, while the growth of crude steel production was around 3.5%. Imports, including those of semi-finished goods, have fallen by 13%, and finished goods by around 9%, y-o-y. Exports have declined by 27%. Steel prices have remained under pressure globally on the back of increased production in China and the fear of a global slowdown following the trade war, which has resulted in lower consumption.

Within the country, the overall economic slowdown and lack of liquidity has impacted the demand for steel from the construction sector, consumer durables and automotive industries, etc. resulting in a steep fall in product prices. The fear of dumping has also led to lowering of steel prices. Due to weak demand, steel prices have declined nearly 20% in the first three months of the current financial year.

The steel sector seeks the imposition of the following measures to revive its growth momentum.

Short-term Measures

1. Extend quality control orders on more steel products and introduce an effective monitoring mechanism to ensure standards.

2. Increase value-addition norms in policy for preference to domestically-manufactured iron and steel products for Government procurement.

3. Make trade actions more effective by removing the lesser duty rule (LDR) and imposing fixed

duty in place of the reference price mechanism.

4. Trade actions such as anti-dumping, countervailing duty and safeguards should be

fast-tracked to arrest unfair exports being dumped into India.

5. Raw Material Security

Scrap Policy: Implementation of the Scrap Policy is critical for the steel industry. Ferrous scrap is the main raw material for the secondary sector, but even the primary sector uses scrap in basic oxygen furnaces to the tune of 15% to improve efficiency, minimize cost of production, and save vital natural resources.
Coking Coal: Every year 45 million tonnes of coking coal are imported for manufacturing steel. Despite the shortage of coking coal, a duty of 2.5% is currently imposed on its import. The import duty of 2.5% on coking coal should be removed, to make this critical resource readily available.

6. Liquidity

Create a dedicated Steel Fund, and broad-base funding sources to ensure availability of working capital.
Ensure adequate liquidity in the steel ecosystem.

Medium-term Measures

7. Steel Demand

Increase metal intensity in key sectors

Bring in robust building and construction standards to drive metal intensity in buildings (incentivize prefab buildings).
Incentivize the creation of SEZ parks linked to Indian primary metal producers with raw material connectivity and preferential allocation of resources.
Enhance the competitiveness of the domestic metal industry by rationalizing taxes. Currently, the cost of steel-making in India is $ 80-100 higher per tonne compared to other countries.

Incentivize auto companies for localization of key components, and for procuring domestic steel.

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