Indian stainless steel industry: present, uncertain future



However, the announcements made in the 2021-2022 Union budget concerning the suspension of countervailing duties (CVD) on Chinese imports of stainless steel flat products, and the repeal of the CVD on imports of stainless steel flat products from Indonesia, have created uncertainty, as the negative impact of the withdrawal of CVDs is now visible in the import surge.

The government’s decision in the 2021-2022 Union budget to suspend the countervailing duty on imports of stainless steel flat products from China, which had been in place since September 2017, and the repeal of the countervailing duty on imports of stainless steel flat products from Indonesia imposed in October 2020, derailed the growth prospects of the sector by opening the floodgates of imports from these two countries.

These duties were based on detailed investigations carried out by the Directorate General of Trade Remedies (DGTR), which had established the prevalence of non-WTO-compliant subsidies in these countries, causing substantial injury to Indian industry.

In the first four months of this 2021-22 fiscal year (April-July of fiscal 22), since the suspension of the anti-subsidy duty on China and the removal of the anti-subsidy duty on Indonesia in the budget of Union 2021-22, there has been a staggering 177% increase in stainless steel imports from last year’s average (FY21) and a 159% increase from 2016 average -17, the base year before the imposition of countervailing duties on China.

Imports from Indonesia are driven by a huge stainless steel capacity of around 5.5 MT put in place by Chinese companies mainly targeting export markets as local demand is insignificant.

India is the second fastest growing market for stainless steel and therefore the target for large-scale imports of stainless steel flat products.

In the pre-COVID year 2019-2020, up to 24% of the market was captured by imports, half of which came from Indonesia, even though domestic industry capacity utilization was not than 60%.

The majority of the spare capacity, being with the MSME sector among the stainless steel producers. It can be mentioned that Indonesian stainless steel has faced trade deals from all over the world including China due to dumping and non-WTO compliant subsidies.

Thus, India offers a ready and open market under the India-ASEAN Free Trade Agreement. The DGTR’s final recommendations on anti-subsidy countervailing duties on Indonesia clearly highlight the subsidies Chinese companies enjoy in Indonesia, giving them an unfair advantage in export markets.

It will also inflate the trade deficit that India already faces with the ASEAN bloc. Some reports suggest Indonesia may overtake India as the second-largest producer of stainless steel at this rate.

The fear of the big boys and the MSMEs is that if the current import trend continues, the domestic stainless steel industry may find it difficult to recover any further.

The profitability of stainless steel units, which is already low, may have been further reduced, making their operations unsustainable.

A profitability comparison between carbon steel players and those in the stainless steel sector will highlight the low profitability of the sector.

The percentage of EBITDA to net sales, which is a good indicator of profitability, varies greatly between the steel sector and the stainless steel sector.

For example, in fiscal year 2020-2021, this ratio for steel companies, such as Tata Steel, JSPL, JSW and SAIL, was 34%, 39%, 27% and 18% respectively.

The same for stainless steel companies, such as Salem Steel Plant (measured on the PBIT), Shah Alloy, Jindal Stainless (Hisar) Ltd and Jindal Stainless Ltd was -3%, 7%, 12% and 12% respectively.

Even under the current market recovery, the profitability of stainless steel remains half of the carbon steel industry. MSMEs, which employ more than 400,000 workers directly or indirectly in their more than 500 units and work with even lower margins than the large sector, could bear the brunt of the impact, even leading to closures and layoffs.

The scenario created uncertainty and put a question mark on future investments in the sector. India’s stainless steel industry is totally globalized, with major raw materials (such as scrap metal and nickel) imported.

The price of stainless steel is determined by international raw material prices and market conditions. However, the price increase for stainless steel has been less than that for many other products.

The stainless steel industry, like other commodities, is also cyclical and operates with relatively lower margins compared to the rest of the steel industry.

Therefore, it is more vulnerable to the vagaries of the market. Despite the inherent cost disadvantages such as cost of capital, logistics costs and dependence on imported raw materials, “Made in India Stainless Steel†is competitive against many developed economies. However, it cannot compete with the unfair trade practices of countries like China and Indonesia.

The Indian Stainless Steel Development Association (ISSDA) has represented the government on various issues in the interest of faster growth, including the issue of CVDs.

The government also announced a series of policy measures to accelerate the growth rate, such as higher infrastructure spending, a focus on dairy / fisheries / food processing, modernization of railways, banking sector reforms, digitization and a massive vaccination program.

This will dramatically stimulate the economy and lift the stainless steel market. However, the doubt that has arisen in the minds of the industry is whether this market will be available for domestic industry or captured by Chinese companies? We are looking for an answer, based on the political perspective and the market environment.

India’s stainless steel industry has grown the hard way. Some pioneer companies like SAIL / Salem, JSL, Mukund, Viraj etc. invested in stainless steel when market visibility was blurry.

In fact, a large 1.1 MT factory by JSL was set up in Jajpur in Orrisa, when this kind of market was not at all visible. The stainless steel industry trusted the Indian market and the exceptional properties of the material to develop the industry by developing the market and creating awareness in the minds of consumers.

The ISSDA has also made its modest contribution to the massive efforts and the industry has grown 10 times over the past 20 years. However, it could not take into account Chinese predatory methods and today finds itself at the crossroads of a new phase of growth triggered by the government on the one hand and the Chinese assault on the other.

Therefore, government support at this critical juncture is imperative to continue the next cycle of growth of the stainless steel industry. There is a need to reinstate countervailing duties on China (dated September 7, 2017) and accept Indonesia’s new final countervailing duty findings, as recommended by DGTR on January 15, 2021, and collect duties anti-subsidy on imports from Indonesia, in order to save an important and niche sector of the economy.

(The author is president of the Indian Stainless Steel Development Association (ISSDA).)

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