Indian domestic steel producers are unlikely to take a direct hit from the Trump Administration’s proposals to impose of higher tariffs as Indian exports of steel products to the US are just three percent of its total export shipments, SteelOrbis learned from sections of industry analysts on Tuesday, January 28.
The analysts said that there are a lot of conflicting possibilities going forward amid changing global trade dynamics and tariff barriers that are being considered as part of the changing political-economic scenario in several western economies.
On one side, there are possibilities that, with the slowdown of ex-China sales to the US, surplus supplies will get diverted to India, putting renewed pressures on domestic prices. But at the same time, it cannot be ruled out that, with imposition of higher tariffs in the US, steel prices in that country can go up, with such higher prices acting as a benchmark for global trade, the analysts said.
“The new Trump Administration is expected to bring fresh measures that could slow global trade due to rising protectionism. This is not a positive sign for global growth and, in turn, the health of the global steel industry. Against this backdrop, unless India puts in place trade barriers to protect its domestic steel industry, the Asian steel capacity surplus could chase a few of the remaining high-growth markets like India in the foreseeable future, keeping domestic prices under persistent pressure,” an analyst at India-based credit rating agency ICRA said.
However, the analysts averred that measures to protect domestic steel producers from rising imports could prove to be a double-edged sword. Imposition of tariffs to check imports risked sharp spikes in domestic steel prices and would benefit producers, but would at the same time be a significant cost push for steel users in the small and medium sector reliant on cheaper sourcing for their steel requirements from China and Vietnam, thereby contributing to the overall cost push of inflationary pressures.
Hence, the dilemma of the Indian national budget to be placed before India’s parliament on February 1 is ‘to levy or not to levy higher tariffs’.
The minister of steel in a recent statement said that they are pushing for the imposition of 25 percent safeguard duties on imports, which is likely to be announced in the national budget.
However, analysts said that such a duty would raise input costs of small and medium-scale steel consumers by 10-20 percent, impacting their competitiveness in domestic and global markets.
Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small & Medium Enterprises (FISME), stated, “The steel industry in India has blown the issue out of proportion to create an environment by which they could make imports impossible and rake in windfall profits.”
“Not just now, the sector has perennially lobbied for more and more protection. You have to try hard to search for a year when they have not tried to make a case for higher import duties. But steel, along with copper, aluminium and polymers, are the building blocks of industrial economies. If they are not subjected to the discipline of imports like all other producers in the micro, small and medium enterprises (MSME) sector, India can forget about being a globally competitive manufacturing base. How can auto-component or cycle part manufacturers be competitive if their raw material steel is left to cost 30 to 40 percent higher than the international market? How can merchandise exports grow?” he said.