The experience that we have as a country with FTAs is not so encouraging. So, we should be cautious when we are proposing to sign the RCEP. The trade deficit when we signed the FTA with Asean, Korea and Japan in 2010 was $15.9 billion. The same for 2019 is $41.8 billion. Therefore, deficits have gone up instead of our exports. Steel, as a percentage of total imports, into India in 2010 used to be 26 per cent. The same in August 2019 was 77 per cent and for financial year March 31, 2019, it was 58 per cent. So, the numbers are steadily increasing. Now, 77 per cent of the steel that has come into India in August was at zero per cent duty. Steadily, the imports into India at zero per cent duty is rising whereas our exports have not gone up to those countries. In value terms, for steel, the deficit has gone up from $1.4 billion to $3.2 billion deficit.
Why have we not been able to export to FTA countries?
Our markets are opening up but we are not being able to access their markets. This is either because there is no market in those countries, being export-dependent economies, or alternatively there are non-tariff barriers. These are concerns with regards to our experience with the old FTA. Now that we want to sign the RCEP, including New Zealand, Australia and China, we should look at the trade deficit numbers which even today is $105 billion, including with the 13 FTA countries. Of this $105 billion, China itself is substantial, at $53 billion. What is worrisome today is particularly China. Either in terms of governance, pollution norms, bank funding, or government support to industry, they are not comparable at all with India. In that event if RCEP is signed, including with China, then there could be a huge problem to the industry. That is why suggestions are being given by the industries to exclude steel.
What suggestions are being given with regard to the old FTAs?
Whatever FTAs we have already signed require review, particularly in the context of the latest FTAs being signed by other countries. In these FTAs, there are certain safeguard measures that are being incorporated. Those include auto trigger of duties. For instance, if imports go beyond certain volumes at unfair prices, without any further investigation, auto trigger of safeguard mechanism will come in. These safeguard or precautionary measures are essential in these agreements.
What is the status of safeguard duty that was being discussed for Indian steel?
Industry submitted the data and there were queries that are being answered. The data being looked into is whether there is any surge in imports. In the current financial year, the increase for the first five months of the year is 0.8 per cent, cumulatively. But in August, there is an increase of 27.5 per cent. For FTA countries, the increase is eight per cent this year. Safeguard duty will be imposed if there is a surge in imports. But since cumulatively for five months it is only 0.8 per cent, the data is not supporting it.
Why couldn't we increase exports to non-FTA countries?
Today, Europe has a quota. USA, Turkey and Canada, all have safeguard duties. Almost every country has put some restriction or the other. Export markets are getting narrowed while imports are hitting us from FTA.
What is the demand scenario right now?
Up to August, the government has released the numbers which are definitely showing a slowdown with regard to overall demand. We started the year with 6.5 per cent, which came down to 1.7 per cent in August.
Have prices bottomed out?
Today, many steel firms are not making money at these prices. Iron ore prices globally are very strong. Coking coal prices have corrected but are still at a level of $140. If the cost of production is worked out, considering FOB coking coal price at $140 and iron ore price at $93, with global steel prices currently at $470-$500, it is not possible to meet both ends. In my view, steel prices have bottomed out.
If prices continue to fall, is a production cut likely?
Production cuts are already being done. For instance, Europe has already announced a production cut. Also, there are announcements of one in the US. So supply-side adjustments have started. In India, secondary steel players are already suffering and only the large players are holding on. Now, moderation in production will come even from large players, if the situations continues like this.
When do you see a revival?
A series of announcements have been made by the government in September. We have to watch out for the second half.