Capacity utilisation by steel companies falls to a four-year low

● Demand for higher import tariffs shows cost disadvantage

- SURYA SARATHI RAY

AT THE CORE of the heightened demand for a higher tariff wall, in the form of safeguard duty, on steel imports is the relative uncompetitiveness of the domestic primary steel makers. The world steel supplies remain robust, making imported cost of the alloy cheaper, even as domestic producers complain of low profitability.

At the end of November, domestic HRC (hot rolled coil) prices were trading at a significant premium of $12-16/MT compared to the landed costs of imports from China and Japan. According to analysts, import pressures are unlikely to alleviate in the coming months unless there is a meaningful recovery in international steel prices, which at this juncture looks improbable.

The government has a difficult decision to make. On one hand, it can't leave the primary steel players to face import competition, when all of them have lined up capacity addition plans. On the other, higher steel prices will exert inflationary pressures, causing price rises across the downstream steel units, and various user industries.

The current fiscal year may see a four-year low capacity utilization level of 78% in domestic steel industry. This is even as large steel companies are already on a major capacity expansion drive, pinning hopes on the strong infrastructure investments in the Indian economy, and a buoyant construction sector. Medium-term forecasts of steel demand in India are quite bullish.