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Due to several global and domestic reasons two industrial sectors, namely – steel and aluminium – are presently faced with certain challenges. Though, the government has taken several timely steps53, they are still faced with huge challenges –
Due to global and domestic factors Indian steel industry has been faced with certain problems in recent times. India is the fourth largest producer of crude steel in the world (with a total production of 86.5 MT with installed capacity of around 110 MT today) – having 5 per cent share in the global production. Global demand of steel has been near-stagnant (particularly China) – forcing global prices to fall up to 45 per cent in 2015 (in India prices fall has been up to 35 per cent). This has made major global steel producers to ‘push’ steel products into Indian market, thus raising two major concerns:
(i) A surge in steel imports, and
(ii) Interest of domestic steel industry hit hard.
The Indian steel industry due to higher borrowings, higher raw material costs with lower productivity is at a comparative disadvantage. The GoI took the following measures to curb the surging steel imports and make domestic production sustainable:
(i) Custom duty increased by up to 2.5 per cent on certain primary iron and steel products.
(ii) Anti-dumping imposed on industrial grade steel imports from China, Malaysia and S. Korea (ranging from US$180 to $316 per tonne). Similar measures were taken by 40 other countries in the world.
(iii) Provisional safeguard custom duty of 20 per cent imposed on hot-rolled flat products of non-alloy and other alloy steel in coils.
(iv) Minimum import price imposed on a number of steel product for a six month period.
(v) Reduced export duty on iron ore to 10 per cent for select steel (from 30 per cent).
As per the government, any further custom increase will impact the downstream industries as steel is used as an input in different industries. This makes it clear that the Indian steel industry needs to get more competitive via cutting its borrowings and raw material costs together with enhancing productivity.
Though India has been a major player in the global aluminium industry, in past few years it has been facing certain challenges due to global reasons. India is second largest producer (after China) and third largest consumer (after China) of aluminium in the world. Today, India produces around 4 MT (China- 21.5 MT) and consumes 3.8 MT (China- 22 MT, USA- 5.5 MT). The challenges Indian aluminium industry is faced with, may be summed-up as given below:
(i) World aluminium prices have dropped by 41 per cent between 2011 and 2015. During this period in India, imports as a proportion of total demand (sales plus imports) have increased substantially from around 40 per cent to 57 per cent.
(ii) Huge capacity has been created in China and world growth has slowed down.
(iii) The cost of production for India is presently higher than international prices. India’s cost of production of aluminium has been increasing gradually while world costs remained static.
(iv) The Indian capacity has increased substantially in 2014–15 and 2015– 16 but its utilization has not improved— utilisation was nearly 100 per cent up to 2013-14 and has declined to 50 per cent by late 2015. This has happened due to fall in global prices.
(v) The Indian aluminium industry will continue to face difficulty unless world prices increase, because in the short run it is virtually impossible to reduce the cost of production.
Global aluminium prices, like other metal prices, are cyclical and it is difficult to forecast when they will begin to move upwards. But the trend is expected to change when world industrial growth improves. India is avoiding custom duty to reduce import of aluminium because it may erode the competitiveness of downstream sectors like power, transport and construction.