25% Import Tariff On Steel to Have Little Impact on Indian Steel Makers in Mid-term

Amidst much hype and debates over the recently imposed 25 per cent import tariff on steel products by the Trump administration, a section of the analysts is of the view that the move is unlikely to have any significant impact on the domestic steel industry in the medium term. At least, that’s what ICRA feels. The US government on March 8, 2018, announced the imposition of a 25 per cent tariff on import of steel products, which would be put to effect from March 23, 2018. Going by a recent study done by the rating agency-ICRA, this duty would be effective on all countries except Canada and Mexico (which together comprises about a quarter of the total US imports), and would affect global steel trade of nearly 26 MT.

 

Consider what Jayanta Roy, senior vice president, ICRA Limited, has to say about this. “These volumes may not be significant in relation to the extent of global steel trade, but one has to keep in mind that any diversion of the same to other countries could lead to a temporary disruption in those markets,” said Roy.

The recent study by ICRA, on the whole, felt that the impact of this import tariff might not be significant in the medium term due to three important reasons:

 

i) The global steel demand (ex-US) is likely to move up by 25 MT in CY2018, and a part of the affected 26 MT sea-borne volumes could be absorbed in other geographies, particularly in the emerging and developing economies.

 

ii) Moreover, Chinese steel exports has been steadily declining in the last two years, reaching 75 MT in CY2017 from the peak level of 112 MT in CY2015. In the current year also, exports maintained similar trend, falling by 27.1 per cent in the first two months of CY2018. Analysts expect this trend is to continue throughout CY2018 in the face of a resilient Chinese domestic demand and proposed steel capacity cuts. Therefore, other steel exporting countries are likely to fill up this supply vacuum left by China by diverting affected volumes away from the US.

 

iii) Further, in CY2017, domestic steel mills in the US operated at a capacity utilization of 74 per cent, and even if capacity utilization rates improve significantly in CY2018, it would still require around 10 MT of steel imports from non-exempt countries. Therefore the US-bound seaborne steel volumes that could potentially be vying for other markets are likely to be lower than 26 MT, moderating its impact on other geographies.

 

It is pertinent to mention here that two key steel exporting countries to India- South Korea and Japan, together exported around 5 MT steel to the US in CY2017. In the wake of the fact that these two countries have free trade agreements (FTA) with India, ICRA is of the view that during the process of global readjustment of trade pattern, an increase in steel imports to India from South Korea and Japan would remain a likely possibility in the near term.

Talking about the impact of the US move on Indian steel exports to the US,  Roy of ICRA said, “India’s total steel exports to the US market remained a meagre 0.7 MT in CY2017, accounting for less than 1 per cent of India’s overall domestic demand. Therefore, Indian steel mills should be able to find an alternate market for its nominal export volumes to the US without much of a difficulty.”