Indian steel imports will go down substantially in FY17 on the back of imposition of minimum import price (MIP) while domestic steel prices are likely to increase by Rs 2,700-3,400 per tonne in the coming months, rating agency ICRA said on Friday.
"With the MIP covering almost the entire spectrum of steel products, which accounted for 87% and 98% of India s total steel imports in FY15 and April-November of FY16, its impact on curbing imports is likely to be more effective than import duty hikes or SGD," the agency said.
The government notified imposition of MIP on February 5 on 173 categories of flat and long steel products for a period of 6 months. Prior to it, the government levied safeguard duty (SGD) of 20% on hot-rolled coils (HRC) of width greater than 600 mm in September 2015, and hiked import duty on steel twice by 2.5% points each in June and August 2015.
"These earlier measures however failed to have any material impact on reducing imports which, even after the imposition of SGD, continued to increase in Q3 FY16 as well, growing by 11.6% year on year (yoy), and 3.13% quarter on quarter (qoq)," ICRA said.
The MIP regime is expected to improve the margins and capacity utilisations of stronger domestic steel players, it said. "However, the extent of margin improvement is unlikely to be sustained over the medium term, given the likely demand-supply mismatch in the domestic industry at current demand growth rates, expectation of weak steel prices in international markets and a limited validity period of six months initially for MIP," it added.
ICRA believes that a strong recovery of domestic demand conditions would be critical for a sustainable improvement in the credit profile of domestic steel players, it said, adding that domestic prices are expected to increase by Rs 2700-3400/MT in the coming months.
Source: DNA India