The long-pending demand of domestic steel-makers to impose the minimum import price (MIP) of steel to prevent low-priced imports was accepted by the government on February 5 but that has led to a moderate increase in the prices of majority of products in the domestic markets.
But many in the industry feel that the impact of the MIP might be negated if there is no real increase in demand for steel in the country in the coming days and the real increase in demand will not come unless there is a positive change in the market sentiment.
“Till now there has been no indication that actual steel demand will increase at a much higher pace of say 10% as compared to the current growth of around 4% till January 2016. Any higher growth in demand for steel is unlikely until and unless the government announces major infrastructure projects to boost the sentiment and encourage private sector investment,” said an official from a steel company.
“Our demand from the government was to ensure increase in steel demand by announcing or speeding up infra projects, but as it was difficult to spell this out directly, it was felt that the industry should push for MIP, which the government has accepted,” the official from a Kolkata-based steel company said.
“Imposition of the MIP may effectively reduce imports by 50-60%. These are currently averaging around 1 million tons (mt) per month or 12 mt per annum but may decline to 5-7 mt provided the MIP is extended for a year from the current tenure of 6 months and to that extent domestic steel sales may rise,” he said.
“If there is growth in steel demand, then probably it can be said that there is an impact of the MIP,” he said.
“We expect that the Budget proposals for 2016-17, to be placed on February 29, by Finance Minister Arun Jaitley will have some confidence-building announcements that will lead to a spurt in steel demand and also an improvement in market sentiment,” said the official.
“However, only government spending will not lead to growth in steel demand as actual demand growth will come through private investment, which is not likely to come through unless there is improvement in sentiment,” said an official from another steel company.
“Today, the situation is such that nobody is willing to invest in view of the uncertain environment. The confidence of investors was severely impacted after what happened in the case of coal blocks. At present, there is lack of confidence in the environment, because investors are not sure whether any decision taken by the government will not be changed by the judiciary in the future or not,” the official said.
Asked why he feels the lack of investor confidence, the official said, “Investors feel that it is the government which should take a call on policy decisions. If the Supreme Court intervenes on policy matters such as coal blocks then, naturally, investor confidence will not be boosted.”
“See what happened with the coal blocks. The previous allottees, who had spent huge amounts of money on developing the blocks, found the same subsequently de-allocated, and are not even getting the returns of their investment and matters have moved to court,” said an official.