Will watch domestic prices; consumers to be protected:Steel Secy

The decision to impose a minimum import price (MIP) for 177 steel products last week is a judicious one, keeping in mind the interests of steel consumers as well, Steel Secretary Aruna Sundararajan tells CNBC-TV18.She says that certain categories of steel that are not produced in India, and also high grade steel products used by the auto industry have been kept outside the purview of MIP.She says the government will review the situation after six months, and if certain steel segments are still facing pressure of cheap imports, other measures like anti-dumping measures will be considered.Sundararajan says domestic steel producers have assured the government that they will not increase prices to a level that will hurt steel consumers.In September last year, the government had imposed a 20 percent safeguard duty on certain steel products for 200 days, and that will be coming up for review next month.Below is the verbatim transcript of Aruna Sundararajan's interview with Latha Venkatesh, Sonia Shenoy and Nigel D'Souza on CNBC-TV18.Sonia: All the steel companies are higher in trade, so there is a big relief rally that we are seeing in the metal space but I just wanted to get a couple of more details out of you, one will there be an extension of the six months validity of the minimum import price (MIP) and two, how much of the total imports will this cover?A: First of all, as you know the current measure is envisaged for a period of six months. However, in the meantime, we will be keeping a close watch on the situation and we will also be looking at moving to other measures like anti-dumping duties. So at the end of six months, we will basically take a decision on depending upon the situation at that point in time. If by when we have already established serious injury through the anti-dumping process then we probably will go for those measures.This will cover roughly about 50 percent of the total imports.Latha: I wanted to ask you whether you are quite sure this is World Trade Organisation (WTO) compliant?A: Yes, indeed. The WTO measures also do provide for certain emergency provisions and in fact, the Indian foreign trade regulation act as well as the foreign trade policy that we have both these, which are aligned to the WTO, do provide for emergency measures to be taken.Latha: Do the other higher import duty and safeguard duty continue throughout the period because you have given these MIP as well? So do all these run now for the next six months, the higher import duty, the safeguard duty as well as the MIP?A: The MIP will be the prevalent price and on top of that, you will certainly have the normal duties. Whether the safeguard duties will be levied or not is the call that has to be taken by the government and particularly the revenue department. That call will be taken very shortly.Latha: We should know that before the Budget itself, in a day or two?A:  Yes.Sonia: There is also a risk of a lot of traders perhaps over invoicing import consignments and then selling steel at a lower price in India, selling of steel illegally etc, how does the government plan to keep a lot of these checks and balances?A: I have definitely foreseen such a situation and we are working on a mechanism to plug it. That will be a fairly full-proof mechanism, which will ensure that over invoicing will be detected and duty imposed. The exact details of it, I won't be able to give you because we are in the stages of working that out but it will be an effective mechanism because we have definitely foreseen the possibility of this.Nigel: What will the MIP be indexed to, will it be indexed to the Platts' index, will it be indexed to the metal bulletin index because we need to understand what is the difference, 450 compares to which index because accordingly it will fluctuate?A: MIP that has been currently worked out is indexed to Platts. So that will continue. The average cost of production in the industry.In terms of the difference, it will be indexed primarily to Platts and Mysteel. These will be the two indices.Nigel: Have you done any kind of study in terms of what is the current inventory of steel in the country, that is number one and also LCs, they will be exempt from this particular policy and in the last couple of months, we have seen that LCs have been going higher. Any ballpark figure that you have because otherwise this is nullifying close to around a month or two months out of the six months?A: You are right. We don’t have exact figures, we are collecting those figures on the inventory but we know it is a fairly high level.Nigel: Another question in terms of just a follow-up to what Sonia Shenoy and Latha Venkatesh were asking. If in case, the company has an overseas subsidiary and overseas subsidiary is buying that particular steel and then they are trying to bring it I, what is the mechanism, how can you protect that or even if you are taking it at the overseas subsidiary, will you have to pay this import duty by bringing it in?A: That is what I was saying that a final call has to be taken. We are working on that. I cannot give you the details because we have just announced the MIP. So we are working on all these follow-through details and very shortly, we will be putting out detailed guidelines on this.Latha: Is there any objection from the user industries? Will they now belabour the point that they become a little uncompetitive, is that an angle that has already been considered or will be considered?A: That has definitely already been taken into account because we do realise that steel is an input material for a lot of the downstream industry and the downstream industry has to compete in this global environment.However, what has attempted to be done is to take a judicial view. For example, certain products or categories of steel, which India doesn’t make and where local industry necessarily needs to rely on imports, those have been kept out. Similarly, higher grades of value added steel which for example, automobile companies require in India, those have been kept out. So we have tried to look at what is the requirement of the downstream industry and we have tried to strike a judicious balance between protecting the steel industry and the safeguarding the interest of the downstream users._PAGEBREAK_Sonia: I am sure you understand that a lot of methods will be used to circumvent this high MIP. So for example, scrap has not been included in MIP, it is only on HRC and cold rolled products and scrap can be imported cheap and converted into steel, so will it be included anytime soon?A: Scrap is a raw material for a lot of small producers and for secondary steel producers. Since they are value adding in the steel industry, we want them to continue to benefit from the cheap import. That is why we have kept scrap out.Nigel: Then in fact, there could be a larger import of scrap and I am aware that in fact the total number of products under steel is around 500. You have levy this particular MIP on 170 of those products and it is fair to compare it not with 500 but maybe around 343 approximately. So why exactly could we not include scrap as well because you are throwing the bet out to those long producers to bring in some scrap and then in fact maybe convert it?A: Let me explain, why 177 lines have been brought under MIP out of the total of 500 lines. What we have done is to go by a strict formula. We have looked at those specific lines where there is serious injury in the last six months and secondly where the quantum of imports has also increased above a certain number. So we have applied this formula across all the lines and we have brought into the notification all those lines, which come within these two.What we will be doing going forward, is keeping a watch and if we find that there are other lines in which there is a similar surge in injurious imports then that is precisely why we have also set up this review mechanism. However, steel scrap is something that we do want -- there is a large secondary steel industry in India, which basically uses scrap and so that industry also needs to be protected and that is why we have kept scrap out.Latha: The safeguard duty ends next month. So will we get the decision now in a week or two whether it will be extended?A: I cannot say whether it will be next week or two but clearly the decision is expected very soon on that.Latha: Can you tell us what are the areas in which we should expect new decisions or rather tweaking of decisions on safeguard duty, on the steel subsidiaries of Indian companies and their status, these are the points on which we should expect clarification? In your own mind what are the set of clarification?A: The three-four things on which we will need to have a detailed framework in place -- one is clearly to see what happens to the safeguard duties. What happens to the existing petitions that have been filed on anti-dumping? How do we move forward on that?The second set of issues is to ensure that there is no circumvention of this order. Circumvention in terms of invoicing as well as if a subsidiary is set up somewhere overseas and then they supply steel here, so both these two categories need to be taken care of.Thirdly, we need to see what is the response to this order in terms of changes in the next few months and what is its impact on the market here? So all these three-four things will have to be reviewed.Sonia: Just to give us little more details on the final landed cost itself, with this MIP of USD 450 on hot rolled along with customs duty and a safeguard duty, how much will imported steel cost, how expensive will it be compared to domestic steel and how much do you think domestic steel makers can raise prices going ahead?A: Let me take the last part of your question first. One is that certainly, while we want to provide a level playing field, this is important because there has been predatory pricing and we know that even companies like Arcelor-Mittal etc are making big losses. So we do need to ensure that this predatory pricing does not harm the steel industry.However, having said that, we also have to take into account the fact that there are a large number of industries, which are dependent on this and so we will be keeping a watch on the prices of steel domestically as well.As to the landed cost of steel -- once this mechanism is worked out, I am sure we will be putting it out to the public domain but I cannot tell you off hand, what will be the actual landed cost because these things need to be worked out.Nigel: Has there been any kind of understanding with the steel companies that beyond a particular level, we will not increase prices? I am just referring to the current price, if domestic prices landed was at around USD 400 and if someone is going to import it at close to around USD 580-600, has there been any understanding that beyond USD 450-460, it will not increase? I have been speaking to a lot of steel makers and they are not increasing anything more than USD 40-50 increase. So is there any kind of understanding that has been given to you all by the steel companies?A: The steel companies know very well that while government has taken this measure to protect the steel industry, government also has a larger responsibility towards downstream industry and consumers. Therefore, we do expect they have informed us that prices will not rise to a level where it will start hurting the Indian consumers. So we will be keeping a watch on that.