Steel imports from China rose over 65 percent in the first half of 2024

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India's inbound shipments of steel from China surged by 66.7 percent in the seven months of 2024, reaching 1.5 million tonnes (mt) compared to 0.9 mt during the same period last year, according to data from market analytics firm BigMint. This sharp rise underscores the growing influx of the alloy from the neighbouring country, despite efforts to boost domestic production.

India turned into a net finished steel importer in the fiscal year ended March 2024 (FY24) as domestic steel prices were trading at a premium over the landed import prices from China and Japan. The resulting slump in demand for local steel led domestic prices falling to an over three-year low. While the country's large steel companies including Tata Steel and JSW Steel have voiced concerns regarding the increased imports, the government is yet to arrive at a solution to the reliance on imports. Local steel manufacturers also suggested that the steel being imported may be priced below cost.

Naveen Jindal, chairman of Jindal Steel and Power Limited, raised concerns about the ongoing import situation, labelling it as predatory pricing. He urged swift action to safeguard the domestic industry, stating, "We have written to the finance minister and steel minister regarding this... The market is highly competitive, with prices lower than anywhere else in the world, yet imports are coming in at predatory rates."

It's not just the players,  medium and small businesses too are naturally bearing the brunt. About 35 percent of stainless steel companies falling in the micro, small and medium enterprise or MSME category had to shut shop between July and September last year. Indian steel producers face levies such as electricity duty, iron ore duty, and coal cess, whereas imported steel is often cheaper due to the absence of similar taxes in other countries, giving foreign steel a price advantage.

To ensure a level playing field, commerce and industry minister Piyush Goyal has proposed the idea of implementing a border adjustment tax (BAT), while encouraging discussions with the steel industry to protect the interests of domestic manufacturers.

Last week,  steel minister HD Kumaraswamy promised to request the finance ministry to raise the import duty on steel from the present 7.5 percent to 10-12 percent. According to BigMint data,  the top steel products that were imported include hot-rolled coil plates, pipes and tubes, electrical steel, and galvanised steel.

What caused Chinese overcapacity? 

China's steel production has surged in recent decades, establishing it as the world's top producer and exporter. However, the prolonged slump in the property market and a slowdown in infrastructure spending by some local governments to manage debt risks are now presenting significant challenges for the industry there.

Since 2021, prices have dropped sharply in China, prompting some steelmakers to advocate for production cuts due to increasing losses and cash flow risks stemming from overcapacity.  However, overcapacity is likely to persist as nearly 55 percent of China’s steel products are used in  property and infrastructure, and both sectors are unlikely to see a significant rise in demand in the coming months, according to Fitch Ratings.

Between January and July 2024, China has overtaken South Korea as the leading steel exporter to India, accounting for 43 percent of India's total steel imports, while South Korean shipments made up 31 percent, according to data from S&P Global.  The surge in cheaper Chinese steel has meant that Indian steelmakers face challenges both in the domestic market and the export sector.