India Raises Import Tariffs, Adding Challenges to China’s Steel Exports

China Securities News (Reporter Ruan Xiaoqin): As China’s economic growth slows, India—whose population rivals that of China—has been held in high regard by the Chinese steel industry. However, India has raised the barriers to steel imports. The Indian government recently decided to increase import tariffs on steel by 2.5 percentage points and tighten quality‑control measures. Under the regulations of its Ministry of Steel, all imported steel must meet the performance requirements set by the Bureau of Indian Standards (BIS).

　　Industry insiders believe this poses a challenge for Chinese steel companies, which have been posting robust export performance.

　　The Belt and Road Initiative is fostering business opportunities in India.

　　China is a major global steel producer, accounting for half of the world’s steel output. However, since 2011, China’s GDP growth has slowed; in 2014, GDP expanded by 7.4%, marking a 24-year low. In the first quarter of 2015, growth stood at 7.0%, down 0.3 percentage points from the previous quarter.

　　Against the backdrop of an economic slowdown, China’s steel industry is grappling with severe overcapacity, leading to a sharp decline in steel prices. This has resulted in a pronounced price‑parity advantage between Chinese and international steel markets. In 2014, China exported substantial volumes of steel, with annual steel exports rising by nearly 50% year on year—accounting for roughly 10% of the nation’s total crude steel output, compared with just 2–3% in previous years.

　　India’s GDP growth is expected to outpace China’s. According to the World Bank’s latest Global Economic Prospects report, India’s GDP expansion will accelerate to 7.4% in 2015, rise to 7.8% next year, and reach 8.0% by 2017. By contrast, China’s growth is projected at 7.1% this year, slowing to 7.0% in 2016 and further decelerating to 6.9% in 2017. “India will be the fastest-growing major economy globally, and over the next two years, its lead over China in growth rates is set to widen,” the World Bank report adds.

　　Meanwhile, India’s steel industry remains relatively underdeveloped. According to data from the Joint Parliamentary Committee (JPC), India’s steel consumption in April totaled 5.5 million tonnes, with steel demand up 7.1% year on year. During the same period, India’s crude steel production reached 7.3 million tonnes, a 0.5% increase compared with the previous year.

　　The gap between China’s and India’s steel industries is striking. In 2013, China produced 820 million tons of steel, while India consumed 110 million tons. Starting in 2011, China faced severe overcapacity, whereas India had to import steel.

　　Harish, head of HLN Goa, a major Indian ore supplier, revealed that in 2013 India’s steel deficit stood at 30–40 million tonnes, with shortages particularly acute in specialty steels, silicon steels, and rail‑grade steels. Meanwhile, an executive at a large Chinese steelmaker told a reporter from the Shanghai Securities News that China faces oversupply in both specialty steels and electrical steels.

　　During the 2014–2015 period, China was India’s largest steel supplier, accounting for 36% of India’s total steel imports. In April this year, India’s steel imports from China surged 62% year on year, reaching 190,000 tonnes.

　　Based on April export volumes, China’s total steel exports to India for the year amounted to roughly 2.3 million tonnes, a negligible share of China’s overall steel output of 800 million tonnes. Nevertheless, the Indian market’s potential should by no means be underestimated. Many observers believe that India’s demand will be a key determinant of the timing of the next commodity bull market.

　　India raises import tariffs.

　　China, Japan, and South Korea are India’s top three steel suppliers. With India raising import tariffs on steel, which of these three—Japan, South Korea, or China—will feel the greater impact?

　　Japan and South Korea enjoy certain tariff advantages in their steel exports to India. In 2009, South Korea signed a Comprehensive Economic Partnership Agreement (CEPA) with India, after which its tariffs on steel exports to India were steadily reduced, reaching zero by 2017. Japan and India concluded a CEPA in 2010; under the agreement, India committed to eliminating tariffs on 90% of goods imported from Japan, including steel. By contrast, China and India have not yet concluded a CEPA, leaving Chinese steel exports to India subject to a 7.5% tariff. Clearly, Japan and South Korea hold a competitive edge over China in exporting steel to India.

　　However, in terms of export prices, China’s export prices remain lower than those of Japan and South Korea. Even accounting for a 2.5% tariff increase—which adds only about $10 per ton to costs—Chinese steel prices still hold an advantage over Japanese and Korean offerings. According to Man Wen, an international analyst at Mysteel.com, taking these factors into consideration, India’s hike in import tariffs on steel will have only a limited actual impact on China’s steel exports. China Securities News reports (by reporter Ruan Xiaoqin): As China’s economic growth slows, India—whose population rivals that of China—has come to be seen as a source of great hope by the Chinese steel industry. Yet India has raised the barriers to steel imports. The Indian government recently decided to increase steel import tariffs by 2.5 percentage points and tighten quality‑control measures. Under regulations issued by its Ministry of Steel, all imported steel must meet the performance standards set by the Bureau of Indian Standards (BIS).

　　Industry insiders believe this poses a challenge for Chinese steel companies, which have been posting robust export performance.

　　The Belt and Road Initiative is fostering business opportunities in India.

　　China is a major global steel producer, accounting for half of the world’s steel output. However, since 2011, China’s GDP growth has slowed; in 2014, GDP expanded by 7.4%, marking a 24-year low. In the first quarter of 2015, growth stood at 7.0%, down 0.3 percentage points from the previous quarter.

　　Against the backdrop of an economic slowdown, China’s steel industry is grappling with severe overcapacity, leading to a sharp decline in steel prices. This has resulted in a pronounced price‑parity advantage between Chinese and international steel markets. In 2014, China exported substantial volumes of steel, with annual steel exports rising by nearly 50% year on year—accounting for roughly 10% of the nation’s total crude steel output, compared with just 2–3% in previous years.

　　India’s GDP growth is expected to outpace China’s. According to the World Bank’s latest Global Economic Prospects report, India’s GDP expansion will accelerate to 7.4% in 2015, rise to 7.8% next year, and reach 8.0% by 2017. By contrast, China’s growth is projected at 7.1% this year, slowing to 7.0% in 2016 and further decelerating to 6.9% in 2017. “India will be the fastest-growing major economy globally, and over the next two years, its lead over China in growth rates is set to widen,” the World Bank report adds.

　　Meanwhile, India’s steel industry remains relatively underdeveloped. According to data from the Joint Parliamentary Committee (JPC), India’s steel consumption in April totaled 5.5 million tonnes, with steel demand up 7.1% year on year. During the same period, India’s crude steel production reached 7.3 million tonnes, a 0.5% increase compared with the previous year.

　　The gap between China’s and India’s steel industries is striking. In 2013, China produced 820 million tons of steel, while India consumed 110 million tons. Starting in 2011, China faced severe overcapacity, whereas India had to import steel.

　　Harish, head of HLN Goa, a major Indian ore supplier, revealed that in 2013 India’s steel deficit stood at 30–40 million tonnes, with shortages particularly acute in specialty steels, silicon steels, and rail‑grade steels. Meanwhile, an executive at a large Chinese steelmaker told a reporter from the Shanghai Securities News that China faces oversupply in both specialty steels and electrical steels.

　　During the 2014–2015 period, China was India’s largest steel supplier, accounting for 36% of India’s total steel imports. In April this year, India’s steel imports from China surged 62% year on year, reaching 190,000 tonnes.

　　Based on April export volumes, China’s total steel exports to India for the year amounted to roughly 2.3 million tonnes, a negligible share of China’s overall steel output of 800 million tonnes. Nevertheless, the Indian market’s potential should by no means be underestimated. Many observers believe that India’s demand will be a key determinant of the timing of the next commodity bull market.

　　India raises import tariffs.

　　China, Japan, and South Korea are India’s top three steel suppliers. With India raising import tariffs on steel, which of these three—Japan, South Korea, or China—will feel the greater impact?

　　Japan and South Korea enjoy certain tariff advantages in their steel exports to India. In 2009, South Korea signed a Comprehensive Economic Partnership Agreement (CEPA) with India, after which its tariffs on steel exports to India were steadily reduced, reaching zero by 2017. Japan and India concluded a CEPA in 2010; under the agreement, India committed to eliminating tariffs on 90% of goods imported from Japan, including steel. By contrast, China and India have not yet concluded a CEPA, leaving Chinese steel exports to India subject to a 7.5% tariff. Clearly, Japan and South Korea hold a competitive edge over China in exporting steel to India.

　　However, in terms of export prices, China’s export prices remain lower than those of Japan and South Korea. Even accounting for a 2.5% tariff increase—which adds only about $10 per ton to costs—Chinese steel prices still enjoy a competitive edge over Japanese and Korean offerings. According to Man Wen, an international analyst at Mysteel.com, taking these factors into account, India’s hike in steel import tariffs is likely to have only a limited impact on China’s steel exports.

　　However, following India’s increase in steel import tariffs and stricter quality controls, Chinese steel exports to India will face greater challenges.

It may be limited.

　　However, following India’s increase in steel import tariffs and stricter quality controls, Chinese steel exports to India will face greater challenges.