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Wednesday,26-January-2022

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Indian stainless steel sector drowning in Chinese imports

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The first half of 2021-22 has seen a 185 per cent increase in stainless steel imports compared to the average monthly imports in the last fiscal, creating havoc for the Indian players.

The import tide of stainless steel from China and Indonesia is fast turning into a deluge destroying many companies on its way, and threatening the very existence of the small, medium and micro industries in India. After all, the first half of 2021-22 witnessed a staggering 185% increase in import volumes of stainless steel flat products compared to the average monthly imports in the last fiscal, fuelled mostly by surge in Chinese and Indonesian imports.

The two countries China and Indonesia, which increased their exports by 300 per cent and 339 per cent, respectively, in the first half of this fiscal compared to the average monthly imports of the last fiscal, now have a share of 79 per cent of the total stainless steel flat product imports in the first half of FY22. It is a significant jump compared to the 44 per cent share in FY21. The average per month imports has jumped from 34,105 tonnes per month in FY21 to 63,154 tonnes per month this current fiscal–FY 22.

Indonesia’s imports share, which was virtually non-existent in 2016-17, has climbed to 23 per cent in the first half of this fiscal, with its average monthly exports increasing from 4,355 tonnes/month in the last fiscal to 14,766 tonnes/month in the first half of this fiscal. China’s average monthly exports too has jumped from 10,697 tonnes/month in the last fiscal to 35,269 tonnes/month in the first half of this fiscal.

The surge in imports was the result of the Finance Ministry’s decision of September 30, 2021 to revoke the imposition of CVD on China (September 2017) and end provisional duties on Indonesia (October 2020), which was based on the recommendations of the Director-General of Trade Remedies (DGTR), after a detailed investigation. The investigation had revealed that the two countries were resorting to non-WTO compliant subsidies to boost their exports to India and causing injury to Indian manufacturers.

In fact, the DGTR and their global counterparts had conclusively proved in its final finding that both these countries provide non-WTO compliant subsidies to the tune of 20 per cent to 30 per cent to their stainless steel manufacturers. And, these subsidies have created an imbalance in the Indian and international markets, reduced the competitiveness of Indian products in the domestic industry, causing material injury and persistent financial stress for home-grown businesses. It has forced the domestic industry to seek redressal from the surge in imports.

In fact, in India a disaggregated study of imported products in the first half of the current fiscal also reveals how excessive dumping has taken place in a particular J3 grade of stainless steel in the country. Imports of J3, a subsidised and dumped 200 series grade of stainless steel, with about 1 per cent nickel and 13 per cent chromium from China, has jumped from an average of 1,779 tonnes/month in 2019 to an average of 4,425 tonnes/month in 20-21 (249 per cent increase) and to average 25,346 tonnes to in just six months of 2021-22 (1,424 per cent) increase compared to the same period last year.

The share of this grade in total imports from China increased 23 per cent in 2019-20 to 72 per cent in 2021-22. Much of this import is even below the scrap prices and it hurts the MSME sector, the hardest. Such dumping also means major losses in terms of national exchequer through tax evasion and revenue losses.

This onslaught of Chinese exports to India has decimated the micro, small and medium enterprises (MSME), which had to bear the brunt of the impact. In fact, the imposition of provisional CVD on Indonesia in October 2020 and CVD on China in place from September 2017, had provided a “level-playing field” to these players, which got a much-needed relief from the dumped subsidised imports. The MSME, an industry having the capacity to produce about 1.2 lakh tonnes of hot and cold-rolled flat products, was able to operate at 90 per cent plus capacity utilization between October 2020 to February 2021.

However, the MSME sector suddenly finds itself grasping for breath to survive after the announcements of the 2021-22 Budget. Small-scale stainless- steel rollers and re-rollers, who make ingots from recyclable scrap as the first step in stainless- steel product manufacturing, and then produce hot and cold rolled materials for the all-India market, find themselves swamped by a massive and subsidised surge of imports from China and Indonesia.

Today, more than 80 induction furnaces and 500 patti/patta units, which provides primary raw materials for various downstream industries, are in dire straits. These downstream industries manufacture a variety of stainless steel household goods such as kitchenware, tableware, cooking range, sanitary items, cutlery pots, etc.

Prakash Jain, President, All India Stainless Steel Cold Roller Association, says: “The smaller Indian stainless steel players finds it virtually impossible to compete with the state-subsidised Chinese players, who get an 18 per cent incentive to export, under invoice their products by changing the label of the products to avoid paying duties and sell it at Rs 15 to Rs 17 per tonne cheaper in the Indian market.”

According to Jain, Gujarat has 70 rolling mills, each employing around 300 people and 50 induction furnaces, which makes ingots, the raw material for rolling mills and employs 500 each.

Not only will many of these jobs be lost resulting in massive unemployment but force many manufacturers to turn traders unless the CVD is imposed on imports from China and Indonesia.

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Equities settle high after crash on Monday; Sensex up over 350 pts

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After a bloodbath in the Indian equity segment on Monday due to continued selling-off pressure by foreign institutional investors, the market on Tuesday recovered its losses, though marginally.

Sensex settled 0.6 per cent or by 366 points higher at 57,858 points, whereas Nifty is 0.8 per cent up or by 128 at 17,277 points.

Barring Nifty IT index, all the others traded in the green during the intra-day trade. Nifty bank, auto, media, PSU bank, and realty indices rose the most, NSE data showed.

On the stocks front, Maruti Suzuki India, Axis Bank, SBI, Indusind Bank, and UPL were the top five gainers, rising 7.4 per cent, 6.5 per cent, 3.9 per cent, 3.6 per cent, and 3.5 per cent, respectively. Wipro, Bajaj Finserv, Titan, Ultratech Cement, Tech Mahindra were the top five losers during the session.

“After a week-long consolidation, domestic indices took a breather supported by low-level buying. Western markets also supported staging recovery following correction in oil markets, and as uncertainties over Fed policy and geopolitical tensions eased,” said Vinod Nair, Head of Research at Geojit Financial Services.

“However, volatility is expected to linger as investors await the Fed’s final policy statement, providing clarity on the timeline of rate hikes. If the statement is as hawkish as anticipated, we cannot ignore a bounce in the market.”

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Budget 2022: Increase in custom duty on Aluminium scrap from 2.5 to 10% is key expectation

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Steel Industry

Steel Industry.

As the Indian economy pushes forward to grow at 9 per cent and above over the next few years, a key challenge for the country would be to rebalance its energy needs in favour of renewable sources by 2030 to 50 per cent as per the Paris agreement.

This is where the Aluminium sector will play a greater than ever before role. Extensive growth in electric vehicles, renewables, modern infrastructure, energy efficient consumer goods and greater dependence on strategic sectors such as aerospace and defence, will drive Aluminium consumption to grow at CAGR of 10 per cent or more. For example, Aluminium usage in EV battery is 40-50 per cent more than a normal ICE. Being 3 times lighter than steel it aids in fuel efficiency making it an efficient choice for EVs.

However, the Indian aluminium industry is struggling to revive itself over the last two years following the unprecedented Covid pandemic. The declining domestic producers market share with surging imports coupled with significant cost escalation for primary producers due to a rise in input costs of critical raw materials, escalating ocean freights & logistics costs due to container shortage, current coal crunch situation etc, is restricting the industry’s ability to support the future of the country at a time when India cannot rely on import sources alone to fuel this growth.

To give relief to the sector, there is a need for urgently looking at the duty structure. The basic custom duty on Aluminium and Aluminium scrap is not in line with other non-ferrous metals like Zink, lead, nickel and tin which is a huge disadvantage for domestic Aluminium producers. The industry expects increase in tariff rate of basic custom duty or peak custom duty rate from existing 10 per cent to 15 per cent. Currently custom duty on Primary Aluminium is 7.5 per cent, Downstream Aluminium is 7.5 per cent to 10 per cent and Aluminium scrap is only 2.5 per cent. This is the reason why despite having significant presence of primary Aluminium capacity and potential to generate sufficient domestic scrap, India’s consumption of scrap is 100 per cent import dependent. The way forward is to increase custom duty on Aluminium srap from 2.5 to 10 per cent.

Primary aluminium industry is facing severe threat from the increasing import of Aluminium scrap. The share of scrap in total imports increased from 52 per cent in FY-16 to 66 per cent in FY-21. resulting in Forex Outgo of $2 billion (Rs 15,000 crore).

What is also affecting the Indian industry is China’s renewed measures to restrict Scrap imports through National Sword Policy, which is leading to greater inflow of scrap into India. China imposed 25 per cent duty on Aluminium Scrap imports from USA, and classified Aluminium Scrap in restricted import list from July, 2019, with plan to completely ban all scrap and waste imports. Post that the share of import from the US in China’s total Aluminium scrap imports has declined from 53 per cent in 2017 to just 16 per cent in 2019. India has overtaken China as world’s largest aluminium scrap importer due to Chinese measures. As a result, entire global scrap chain is shifted to India in absence of any quality or BIS standards for scrap recycling/ usage and imports in the country. A major threat is from US scrap imports, as US is diverting large volume of scrap to India, since EU and other developed countries have stringent standards for scrap. The import from US as share of India’s total scrap imports increased from 8 per cent in FY16 to 24 per cent in FY21.

This precarious situation can be resolved by safeguarding the domestic industry against these non-essential imports in the upcoming union budget.

The industry demands increasing the basic custom duty on Chapter-76 (Aluminium & articles).

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Maruti Suzuki’s Q3FY22 net profit down 47.90%

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Automobile major Maruti Suzuki India’s Q3FY22 net profit declined by over 47 per cent on a year-on-year basis, falling to Rs 1,011.3 crore from Rs 1,941.4 crore in Q3FY21.

The automobile major cited lower sales volume along with high commodity prices and lower non-operating income on account of mark-to-market impact as factors behind the net profit decline.

Net sales for the quarter under review fell to Rs 22,187.6 crore from Rs 22,236.7 crore earned in Q3FY21.

“The company sold a total of 430,668 units during the quarter, lower than 495,897 units in the same period, previous year,” the auto major said in a statement.

“Production was constrained by a global shortage in the supply of electronic components because of which an estimated 90,000 units could not be produced.

“In the domestic market, the sales stood at 365,673 units in the quarter, against 467,369 units in Q3FY21.

“There was no lack of demand as the company had more than 240,000 pending customer orders at the end of the quarter. Though still unpredictable, the electronics supply situation is improving gradually. The company hopes to increase production in Q4, though it would not reach full capacity.”

Besides, in the quarter under review, the company clocked its highest ever exports at 64,995 units as compared to 28,528 units in Q3FY21. “This was also 66 per cent higher than the previous peak exports in any Q3.”

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