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Minimum steel import price – a new phase in protection measures?

So far in 2016, countries have been increasingly filing for trade measures to protect their steel industries, while the insufficient impact of antidumping actions has led to another measure. The minimum import price imposed by India has resulted in the recovery of Indian domestic finished steel prices. Let us look at which countries could apply this minimum import price and what the pros and cons are.

 

This unprecedented measure in India requires a minimum import price for billet, slab, hot rolled steel products, cold rolled steel products, wire rod, rebar and alloy flat steel products for a period of six months. Accordingly, prices of products to be shipped to India will not be lower than the minimum price determined for each product. In the past, the closest application to India’s minimum import price was the suspension agreement the US signed with Ukraine and Russia many years ago. However, the part of this agreement concerning Russia was cancelled in 2014. US steel industry players had already been complaining that the agreement was of no use before its cancellation. India will decide at the end of six months whether to continue imposing the minimum import price.

 

Following the imposition of the minimum import price, Indian domestic prices increased and will likely continue to increase. The effect of this new measure on the Indian steel industry will give us a good idea of the other countries in which such a minimum import price may be applied. In 2014, India was the fourth biggest liquid steel producer in the world and according to the 2014 figures the country’s semi-finished and finished steel imports stood at 9.5 million mt, while its exports of the same products amounted to 10.3 million mt. In 2014, India produced 129 million mt of iron ore, imported 5.7 million mt of scrap and produced 86.5 million mt of liquid steel. In the given year, electric arc furnaces accounted for 58 percent of India’s steel production, while blast furnaces accounted for 42 percent. In this context, imported raw materials account for just 6.5 percent of total raw materials used in India’s steel production, indicating that India is mostly self-sufficient in terms of steelmaking raw materials.

 

The most important question regarding the minimum import price is what steps Indian exporters are taking in the export markets. It may be pointed out that the Indian steel industry is generally not dependent on imports for the production of steel goods for export. Meanwhile, special steel grades used in pipe production are exempt from the minimum import price. Another issue is the rapid increase in domestic producers’ prices. This is where the Indian authorities come into the picture. They said that they have had talks with domestic steel producers and will review the whole process if they observe any inexplicable and sharp price increases within two months of the imposition of the minimum import price.

Which countries are unlikely to resort to use of a minimum import price? At first glance, it is obvious that the countries which are not self-sufficient in terms of raw materials will not be able to impose a minimum import price. Another issue is that the minimum import price is an opportunity which steel producers who have long been hurting due to limited profit margins do not want to miss: in this regard, Indian producers are a good example – they do not see any harm in hiking their prices in spite of the prior discussions they had with the Indian authorities.

 

Although the minimum import price seems to have been thought out thoroughly on paper, the main problems with it will be detected during its implementation. It is not possible for Indian exporters to compete in the global market given their domestic prices. Another important issue is whether India’s export offers will be targeted by dumping measures given that they are lower than Indian domestic prices which have risen since the introduction of the minimum import price. We will see what Indian domestic producers will do in the first six months of the implementation of the new measure and what difficulties Indian exporters will face. In conclusion, the minimum import price constitutes a test case for the steel industry where everyone is looking for a solution.


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