Competition from Association of Southeast Asian Nations (ASEAN) and free trade agreement (FTA) countries, particularly cheap imports from Chinese manufacturers, is putting pressure on the price of steel globally. In India, manufacturers have cut their prices as much as 7-10% below their production costs. Stainless steel imports in India increased by almost 38% between April to December 2014, and much of this can be attributed to manufacturers in ASEAN countries. Jindal Stainless reports that China alone accounts for almost 35% of the increase, with projections for further imports in the last quarter of 2015 being as high as 100 000 to 150 000 tonnes. The Indian Stainless Steel Development Association (ISSDA) estimates India’s annual stainless steel consumption to be 2.7 million tonnes.
Increased Global demand and offset by Inreased Production
While India has increased its production capacity to 5 million tonnes over four years (up from 3.5 million tonnes), China has increased its production capacity from 7 to 17 million tonnes, making it far and away the world’s largest producer of stainless steel. Unsurprisingly, China is also the world’s largest exporter.
According to the Delhi Stainless Steel Trade Association, the country’s capacity utilisation for stainless steel production has dropped to 55% from 65–70% a year ago – between 2.6 million to 2.7 million tonnes, with further decreases possible. It has also resulted in weaker domestic demand— ISSDA estimates that India now imports 40% of its stainless steel.
Calls For An inquiry Amid Claims of Unfair business practices
Both India and the European Union have launched probes into stainless steel imports from China, with the EU also investigating imports from Taiwan. The Comprehensive Economic Cooperation Agreement (CECA) that India has signed allows Vietnamese and Malaysian manufacturers who import stainless steel to forego the 7.5% import duty, so long as they can show that the value of the steel has increased 35% as a result of their use of the material.
However, ISSDA is concerned about how the companies account for this mandatory value addition, as there is little evidence that stainless steel manufacturers in these countries have the facilities required for hot- rolling. According to figures obtained from MEPS Stainless Steel Review, importing hot-rolled sheet to convert to cold-rolled adds no more than 10% to 15% in value.
As a result, ISSDA said in a statement, they believe “some foreign companies are furnishing Preferential Certificates of Origins to convince custom authorities in the country of import that the material has originated in the country of export.”
The Indian ministry of Commerce and Industry has launched an investigation into the impact of Chinese imports as the result of pressure from the local stainless steel industry.
ISSDA also believes Chinese manufacturers have access to cheaper raw materials, such as ferrochrome, with claims that the Chinese government subsidises electricity and working capital loan interest.
However, manufacturers in other industries oppose such an inquiry, fearing that they will lose their access to cheaper materials, thereby threatening their position in the export market where they face competition from other countries, including China.
With the Process Plant & Machinery Association of India (PPMAI) disputing the claims by ISSDA and Jindal Stainless, the result of the government investigation is far from clear, but it could have a far-reaching effect on one of the world’s largest producers of stainless steel.
The Indian government has reasons to want to avoid an overly confrontational attitude, as India and ASEAN countries signed an FTA agreement in 2009. The ministry has said that it hopes the value of this agreement, in the form of services and investments, will increase to $100 billion from its current level of $80 billion, from July 2015 onwards.