Minimum Import Price Fully WTO Compliant, Says JSW Steel Joint Managing Director
The large profit margin recorded by JSW Steel became evident, especially when the steel industry demanded an extension of the minimum import price to protect itself from cheap imports. Flare-ups by falling demand and restricting steel imports, small units are putting pressure on government MIP scrap metal and various other import duties. Seshagiri Rao, deputy general manager of JSW Steel, in an interview with Business Line, justified the safety net. Extract:
What are the chances that MIP will get an extension?
In our opinion, the oversupply situation in the global market is still present and not much has changed since the introduction of the PIM in February. So, the MIP should not only be extended, but also extended because there has been a lot of bypassing. When the MIP was introduced to cover 80 percent of imports, shipments were expected to drop by at least 50 percent. However, imports fell only 26 percent. A few varieties of TMT bars used in the construction industry are imported as alloy steel which is not covered by the MIP.
The user industry believes that rising steel prices in India have crowded them out?
It is not possible for a company to unilaterally increase steel prices because there is enough competition at the national level. After a long time, international steel prices began to increase. Steel prices in China rose 67 percent to $ 450 per tonne, from $ 270 per tonne in February when MIP was introduced in India. On the other hand, steel prices in India rose only 12 percent when comparing the June quarter to the March quarter. In fact, prices in India have been falling since May due to weak demand and the onset of the monsoon slowing down infrastructure activities in the country.
Does MIP violate the WTO agreement?
This is totally a misconception. WTO member countries refer to Article 11 of the General Agreement on Tariffs and Trade to say that the IMP is not WTO compliant. Out of curiosity, I went through section 11 and found that there are exceptions to this rule in section 19. It can be applied in three respects when there is a sudden increase in imports of any product, injury to domestic industry due to imports and food shortage. So when they talk about violation of section 11, they should look at the exceptions provided in section 19. It is interesting to note that the same has also been adopted in the Indian Customs Act.
It is also considered that the MIP is eroding the export competitiveness of Indian industry?
Exporters still have the option of importing steel without paying duties or pre-licensed PMI. Moreover, steel prices in India are always in line with the international trend. So to say that PMI erodes export competition is not true.
What share of the total imports for the June quarter is achieved through prior licensing?
This data is not available at the moment. You have to analyze the whole import and arrive at this data. The point is that imports did not fall as expected when the PMI was introduced and more than 50 percent of imports fell below the PMI. If you take the current average of 6.5 lakh tonnes of imports per month, that comes down to 7-8 million tonnes per year. These kinds of imports will derail national steel companies.
Did MIP help JSW Steel achieve highest EBITDA and profit ever in the June quarter?
It is true that our Ebitda and our net profit increased compared to last year, but if you compare sequentially, our sales achievements only increase by one percent. The main drivers of profitability are a 12% decrease in costs and higher volumes. The impact of MIP was common to all steel companies in India. Crediting MIP for our good performance is not correct.
User industry margins are reduced due to high steel prices?
You really have to wait for the financial results of other steel companies and the user industry before drawing a conclusion. Automakers were successful in raising prices even as steel prices fell between May and June. It is because auto sales were increasing. So blaming steel is not correct.