Trump Tariff On Steel, Aluminium May Eventually Pull Down Exports From India: Ind-Ra

Although the hike in import duty on steel (25 per cent) and aluminium (10 per cent) by the Trump Administration may not immediately impact Indian producers, in the long run, the impact could eventually percolate through lower international prices due to excess supply from exporting countries while also leading to lower exports. That’s what India Ratings and Research feels. According to the latest Ind-Ra study, the import duty hike by the US is unlikely to immediately impact Indian producers, as exports to the US are low at 2 per cent and 6 per cent. However in the long run, it may have serious impacts. Global price corrections could further delay the deleveraging plans of Indian steel players. India’s export of aluminium to the US increased by around 2x between 2015-2017 during January-October, while steel exports to the US remained flat despite 40 per cent growth in the overall exports by India.

 

The Ind-Ra study points out that countries like Canada, Brazil, Russia, and Korea contribute majorly to the US imports of steel and aluminium. Due to the higher import duty in the US, these countries (except Canada and Mexico which are exempt) may diversify into other importing geographies. Hence, there would be around 6.4 million metric tonne of steel and 3.7 million metric tonne of aluminium available globally, driving down the prices and pressurising domestic realisation.

 

The move can prove to be a deterrent to a gradual recovery especially in the steel industry. An anti-dumping duty is in place, but as the current realisation is well above the duty price point, prices may fall into duty levels.

 

“Though Indian steel imports would be restricted to specialised products not manufactured in India, a situation of cheap availability of imports may prove as a double whammy, especially against the backdrop of a growing domestic demand of steel. Alternatively, even if other importing nations set up trade barriers, exports could still be a casualty and capacity utilisation rates could take a hit. However, the effect could be significantly lower in case the US tariffs are applicable only to select exporters and retaliatory actions are minimal,” it said.

 

The Ind-Ra study further pointed out that the utilisation levels of the existing plants could decline, aggravating the problem of oversupply. If these major exporting countries to the US start dumping into India, one of the largest steel consumers, then the situation of oversupply could lead to a decline in the capacity utilisation levels of domestic players.

 

“Besides, there is room to cater to the US steel demand internally, as the utilisation rates are below 75 per cent. This suggests that at least in the medium to long term, the quantum of imports by the US will diminish gradually as the local demand will be met by capacity ramp-up,” said Ind-Ra.

 

There can also be some cascading effects on exports. The study suggested that with the global demand recovery in steel, India has become a net exporter of steel over the past few quarters. Besides the marginal impact of the duty hike on domestic companies for having limited exposure to the US, any deterioration in international prices could prove as a collateral damage. India primarily exports steel to Italy, the UAE and South East Asian countries. With export markets becoming more competitive, domestic steel companies may not only lose their market share in the exporting regions but also see the export value declining due to lower global prices of steel and aluminium.