In early November, large Indian steel mills have shifted their focus to concerns over the recent WTO ruling against Indian export subsidies. The government subsidies will be lifted over the next three months, which will lead to higher costs for exporters and, as a result, higher prices.
In response to a US complaint, the WTO ruled that the complaint had “demonstrated existence of prohibited export subsidies that were inconsistent with the Subsidies and Countervailing Measures (SCM) Agreement”. The ruling has gone against five export promotion schemes offered by the Indian government that allow exemptions and deductions from customs duties and other taxes and recommended that India withdraws these schemes within 90 days.
The total subsidies are worth about $7 billion and benefit exporters in industries like steel, pharmaceuticals textiles and apparels.
“While the Indian government will have to make changes in the export promotion schemes in line with WTO compliance, in the short term exporting steel mills have to rework their export pricing factoring in curtailment of incentives received from the government to date, “ an analyst at a Mumbai-based financial services firm said.
Most sources said that it is too early to specifically gauge the impact of the imminent withdrawal of benefits to exporters under various government export promotion schemes, but exporters will certainly need to adjust pricing. For example, all customs duties paid on imports of raw materials that go into production of goods which are again exported are reimbursed by the government at the moment. This support will be lifted and mills’ costs will increase and they will have to be reflected in higher export pricing, SteelOrbis has learned.
Steel company officials say it is difficult to say how much export volume will be affected unless the exact numbers are worked out for each specific grade of exported steel products, the amount of imported raw materials that go into production of that product, and the amount of loss of incentives specifically for each product category. But all the officials concur that it will definitely impact export volumes until the Indian government is able to work out alternative export promotion schemes.
At the same time, the recent uptrend in Indian steel export prices has mainly been driven by stronger demand. For example, Indian mills have managed to increase HRC export prices in Vietnam by at least $10/mt to $430-435/mt CFR, because “there was recovering demand and bids reached this level,” a trader said.
Offers for Indian billet in the Southeast Asian market are at $405-410/mt CFR, in line with other suppliers like Russia and Vietnam.