ALLOY STEEL — A VALUE ADDED PRODUCT
Ours is an industry association representing alloy and stainless steel (long products) sector of the steel industry. Though alloy steel (including stainless steel) constitutes only approx. 10% of the overall annual steel production in terms of quantity, its share is approx. 20% in terms of value since the products are substantially value added for specific end uses. Alloy steel in fact is not "commodity" or "merchant" steel like carbon steel plates and sheets or carbon steel building and construction steel material popularly known as Mild Steel. Alloy steels are specifically produced for use in sophisticated engineering products for various critical applications such as machined components, engine parts, steering components and bearings and the like for the automobile industry.
The customs duty on import of alloy steel in India, till sometime back, used to be 50% higher than that on merchant steel products. In a sense, alloy steel was more at par with automotive components where import duties are much higher at 10%. However, in a major departure from the earlier norm, all categories of steel are now at 5% basic import duty which we consider an anomaly and which has placed alloy steel sector in a disadvantageous position.
UNDERUTILIZATION OF ALLOY STEEL CAPACITY IN INDIA
The growth of alloy steel is linked mainly to the development of the automobile and auto component industry. Between 2004-05 and 2007-08, the demand for alloy steel was growing at 15% a year. This encouraged the existing alloy steel units to go in for substantial expansion and several new players also entered the industry. As a result, there has been a production capacity increase from 6.5 million tonne (mt) to about 11.0 mt. between 2007-08 and 2010-11. However, due to the global economic downturn in 2008-09, the alloy steel sector was severely impacted resulting into an underutilization of the capacity which is now only around 58-60% as against 80-85% for general steel.
THREAT PERCEPTION FROM IMPORTS
In the wake of the stagnant US economy, Japan's negative growth scenario due to the impact of the tsunami and the sovereign debt crisis in the euro zone counties such as Greece, Ireland, Portugal, Spain, and now Italy, the emerging crisis in the Western world may be far more severe than even the financial meltdown in 2008-09. The prospects of steel exports to these countries have therefore considerably declined. On the other hand, countries like China which alone has an export surplus of 100 mt. and other steel surplus countries such as Korea and Germany, are likely to target India.
To avert, or at least mitigate, such a possibility which will aggravate the problem of the alloy steel sector already saddled with a huge domestic surplus capacity, it is necessary to raise the basic duty of customs from the existing 5% to at least 7.50% (if not 10%). This will provide some degree of protection to the alloy steel segment. Our suggestions are summarized at Annexure-I.
CUSTOMS DUTY ON RAW MATERIALS FOR PRODUCTION OF STEEL
We may point out that Nickel required for producing Alloy / Stainless steels is not available indigenously. At present the customs duty on all three categories of nickel viz. Unwrought Nickel, Nickel Oxide and Ferro Nickel is 2.5%. We suggest that in order to make alloy steel production more competitive, the duty on all the three forms of nickel be brought down from 2.5% to NIL, as indicated at Annexure-II to this representation.
Sir, these are a few issues of immediate concern to the alloy steel sector which we have tried to bring to your kind notice. We request you to kindly direct the Ministry of Steel and the Joint Plant Committee to study these suggestions and make suitable recommendations to be incorporated in the Union Budget 2012-13.
Once again we wish to express our deep sense of gratitude for the proactive role the Steel Ministry is playing for ensuring speedy growth of steel industry which is one of the core industries of the national economy.