Exports: A question of overkill

Krishnan Thiagarajan

THE PAST couple of years have been an enlightening period for exports of steel from the flat products segment. The key trends witnessed on the export front can be categorised into three distinctive heads:

Toll of Asian meltdown (1998-99): Following the Asian meltdown in 1997-98, the economies of Malaysia, Thailand, Japan, South Korea and Indonesia experienced as turbulent phase. The recession in these economies and the currency devaluation led to India's steel export market virtually drying up. For India, the Asian meltdown proved to be a double whammy.

First, the South-East Asian economies erected protective barriers against imports from abroad, effectively shutting off an important destination for Indian exports. Second, due to the domestic slowdown, the Asian economies saddled with surplus steel attempted to ride out of the crisis by dumping steel in relatively sound economies such as India, the US and Europe.

Due to these factors, the total exports of saleable steel in 1998-99 at 1.95 million tonnes was actually 18 per cent less compared to the level recorded the previous year. However, even in such a depressed year for exports, the composition and destination of Indian exports witnessed a marked difference. While there was a sharp drop in the export of pig iron, semis, plates, bars and rods, value-added products such as HR coils and GP/GC sheets recorded a surge in 1998-99 over 1997-988.

In 1998-99, exports of HR coils and GP/GC sheets recorded a 13.8 per cent and 24.3 per cent rise over the previous year, clearly indicating that the export composition was shifting towards a more enriched product-mix.

Similarly, the onset of the South-East Asian crisis forced the Indian steel industry to divert steel exports from Asia to US and Europe. It was largely successful in this effort as in 1998-99, these exports surged by 105 per cent to the US and 89 per cent to Europe over the previous year. It also brought in its wake, anti-dumping and countervailing investigations from the US and Eurofer (European Federation for Iron and Steel).

Click here for Table

Exporters make merry (1999-2000): The buoyant price trends for flat products such as HR coils, CR coils and GP/GC sheets (particularly in the third and fourth quarter of 2000) and sluggish domestic demand created conditions for the export market's strong growth. The international HR and CR coil prices improved nearly 36 per cent and 27 per cent respectively in March 2000 compared to the previous corresponding period. But much of the sharp rise was between November and March 2000, when HR coil prices jumped from around $255 to $300.

The sharp uptrend in prices, alongwith the EPCG commitments of most major private sector steel producers, served as a trigger for the sharp export growth from India in 1999-2000 over the previous year. Practically all the steel producers -- SAIL, Tata Iron and Steel, Essar Steel, Jindal Vijaynagar Steel and Ispat Industries -- participated in the export markets in a big way. As the steel industry showed signs of a recovery on the price and volume fronts, major Indian steel producers exported to capitalise on higher prices and shore up battered bottomlines.

The total exports of saleable steel recorded 53 per cent growth in 1999-2000, with HR coils being the key export constituent from India during the year. As the US and European economies continued to record high growth rates, there was concentrated movement of exports towards these two destinations, triggering a wave of anti-dumping trade cases against India. The Indian plates suffered heavy anti-dumping duty from the US, while HR coils came under EU trade action. After extensive discussions and hearings, the European Commission decided to accept price undertakings to export at pre-determined minimum prices from individual exporters with respect to future export consignments. Clearly, the rallying cry for protection was in full force from both the US and the EU.

Killing the goose... (2000-01): While demand from the key end-user segments of steel, such as infrastructure, capital goods and automobiles in the domestic market, continued to remain depressed, there was a sharp recovery in the international prices of steel in the global markets. The sluggish domestic demand aided by the sharp depreciation in the rupee made the export market extremely attractive.

By the first half of 2000 (January-June) it was obvious that HR coil exports were surging alarmingly. According to information culled from the US steel industry delegation in July, in the first five months of 2000 (January-May), India's exports of HR coils reached 4.82 lakh tonnes, a 185 per cent increase over the corresponding previous period. In value terms, in the same period, the export growth at 418 per cent was even more staggering.

By going overboard on the export front, India (and 10 other countries) have ended up paying the penalty. US steel producers, led by four mini-mills on November 13, 2000 filed unfair trade cases against HR Coil imports. In a major setback to Indian steel majors, the US recently decided to levy preliminary anti-dumping and countervailing duties on Indian exports of HR products. It proposes to finalise the exact penalties by April 23, 2001.

Actually, this unfair trade case started off on a strong footing as the case was first initiated by the US mini-mills. As the lowest cost and most efficient mills on global benchmarks, mini-mills such as Nucor have all along been fundamentally opposed to anti-dumping duties. These mini-mills were later joined in the anti-dumping petition by the traditional mills such as US Steel, Bethlehem Steel, National Steel and others.

In the trade petition, US mills have said that the combined HR sheet imports from the eleven nations, which were under 6 lakh tonnes in 1997, surged to 3 million tonnes in 1999 and stood at 3.6 million tonnes in the first nine months of 2000. According to these mills, these imports formed a sizeable chunk of the US HR coil consumption of about 27-30 tonnes annually. The US mills have also claimed that the eleven countries accounted for 60 per cent of all HR sheet imports so far into the country, up from 10 per cent before the meltdown in 1997. In January-September 2000, imports from India and Taiwan were the highest among the eleven nations, with more than 7 lakh tonnes each. They were followed by Netherlands and China accounting for more than 4 lakh tonnes each.

This clearly suggests that India is paying the price for overenthusiasm on the exports front and the US's retaliatory action was only to be expected. As early as July, the Indian delegation apprehended the possibility of anti-dumping proceedings being initiated against Indian HR coils exports. But despite this warning, the exports continued at a brisk pace. From the statistics available, it is clear that in the four months between June and September 2000, India exported an additional 2.20 lakh tonnes of HR coils to the US.

Due to the shortsighted attitude and the absence of adequate monitoring mechanisms, Indian steel producers only ended up foreclosing their export opportunities. It also became convenient for countries such as the US to attribute the slump in international prices, at $320-$330 per tonne in the second quarter of 2000, to the current $190-$220 to unfair trade practices.

An enlightening phase: The immediate impact on the Indian steel industry is two-fold. First, the trade action launched by the US will have a deleterious influence on the export potential of India. As Mr R. K. Prasannan, Development Commissioner of Iron and Steel, and Chairman, Joint Plant Committee, said in a recent interview: ``Trade actions have naturally and quite expectedly hit our exports. For example, exports of plates to the US and EU have literally stopped. So also, exports of HR coils to the EU. A trade case hits every company trying to export that product. If there is a loss of market to one, there is denial of access to another, if not already exporting.''

Second, the sharp decline in international prices have made exports unattractive. This effectively means that the Ninth Plan Working Group on Iron and Steel projections of an export potential of six million tonnes by 2001-02 for the Indian steel industry appears highly optimistic and is unlikely to be attained over the next year or so.Finally, the current situation seems to indicate that there is the possibility of a sharp export decline from India, if recent price trends and trade actions are anything to go by.

And things may get worse, if as Mr Prasannan says: ``Nations worldwide are finding it convenient to use the anti-dumping mechanism. This is reducing market access to the more competitive players. It all started with the developed countries resorting to such tactics. Now, some developing countries are also adopting similar means.''

This is something that all Indian steel producers need to ponder over. Whether it forces these players to explore alternate markets aggressively, or helplessly watch export potential slip away remains to be seen.