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THE IRONY OF STEEL
- China’s growing concern over steel imports from India

Question 1: Which is the world’s largest consumer of steel' Answer: China

Question 2: Which is the world’s largest producer of steel' Answer: China.

Nothing surprising so far. But here is a new one.

Question 3: Which country became the world’s largest importer of steel in 2002' Answer: China.

This has happened because steel imports by the United States of America have dropped following protectionist measures adopted by that country. But with Olympics 2008 in Beijing, the trend should continue.

But here is something totally unexpected.

Question 4: Which country has the highest rate of increase in market share of Chinese steel imports in 2003'

Answer: You would never have guessed — India

In 2003, China’s steel consumption is estimated at almost 240 million tonnes which is almost a whopping eight times India’s pathetically low consumption. This year, China’s steel imports are expected to be around 32-34 million tonnes which will be more than all the steel we will consume. This is phenomenal growth by any standards. In 1990, steel consumption was just at about 50 million tonnes. This doubled by 1993. 1993-97 showed little growth. But during 1997-2002 yet another doubling took place.

The phenomenal difference in steel use between China and India does not reflect Indian efficiency or some new economic growth trajectory invented by us. It reflects the huge gap in infrastructure, in manufacturing, in industry, in construction and in investment spending. In many ways, the difference in steel consumption sums up the economic story of the two countries. What is particularly ironic is that an NRI group, owned by L.N. Mittal, is now the world’s second largest steel producer.

In the past 15 months, India has gained significantly from the growth in the Chinese steel market so much so that presently about half of India’s exports of steel go to China. Steel exports have caused the trade balance to swing in India’s favour for the first time in 2003 so far. Going by Indian figures, India exported just 20,000 tonnes of steel in 2000 to China. This trebled to 64,000 tonnes in 2001. But in 2002, there was a massive jump to about 262,000 tonnes and even further to 709,000 tonnes during January-July 2003. The big five accounting for around three-fifths of all steel exports to China are SAIL, Ispat, Tata Steel, Jindals and Essar.

The figures being used by the Chinese are different and show even greater penetration of Indian steel in Chinese markets. For the period January-September 2003, the China Iron and Steel Association reports Indian exports of 1.58 million tonnes. For 2002, the Chinese figure is 480,000 tonnes, as compared to the Indian figure of 262,000 tonnes. Indian exports have been mainly in hot rolled coils/sheets, cold rolled coils/sheets, galvanized products and even stainless steel. The Indian companies have been so successful that the Chinese have begun to worry. They have asked the Indian companies to slow down their exports. The Indian companies, not wanting to antagonize a newly found market, have been defensive, saying that as the Indian steel market picks up, exports to China would automatically get moderated. Price and “dumping” of steel is not the issue — if anything, China benefits on this score since India is now among the lowest cost producers of steel and Indian prices can be used by China as a benchmark. What is irking the Chinese seems to be market share. In 2002, India accounted for just about 2 per cent of China’s steel imports. But in 2003 so far, India’s market share has jumped to 6-7 per cent, close to that of Russia but well below that of Japan, Taiwan and South Korea. This has caused Chinese discomfort. The Chinese say that they are entitled to take protective measures under the World Trade Organization when imports of steel from a particular country cross 3 per cent of all steel imports. They are technically right. India says anti-dumping duties can be imposed only after determining “material injury” in relation to imports as a proportion of consumption or production. This position is also right. Last November, China imposed “safeguards” duties of between 10-23 per cent on selected categories of steel imports from countries like Japan, South Korea and Germany. India was spared at that time on the grounds that it was a “developing country”. Indian companies gained. But they have become the victims of their own success.

Why is China expressing concern in regard to steel imports from India' Perhaps, it finds it galling that of all countries India has done so well in its steel market. It is not that India is a threat. New capacity is coming on stream in China itself and while old capacity will be moth-balled, the notion that the Indian steel industry is a significant competitive threat to China is laughable. The roots of China’s changing stance on galloping steel imports from India lie beyond steel. It lies in the Chinese belief, not entirely unfounded, that India continues to have reservations about Chinese investments in our country, whether it is power, consumer goods, telecom, software, ports and mining. Clearly, the momentum and goodwill generated by high-level political visits has not had any impact on our bureaucracy and security establishment. The Chinese are also unhappy that China attracts the maximum number of anti-dumping investigations by India — in the last five years, China accounts for about a fifth of all Indian anti-dumping duty cases. We look at China in sectoral compartments — steel, chemicals, software, and so on. On the other hand, the Chinese have a holistic approach.

China’s steel industry offers new avenues for investment cooperation with India. China requires iron ore desperately — high-grade reserves are scarce. Roughly one-third of iron ore requirements are presently imported largely from Australia, Brazil, India and South Africa, with India accounting for about a seventh of imports. Imports are bound to increase and some estimates are that by the end of the decade the proportion of imports could well exceed 50 per cent. Clearly, India offers a number of advantages as a source of iron ore. One option would be to entice China into long-term contracts of the type we have with Japan and South Korea with the prospect of China investing in mine development and exploitation, apart from ports as well. Chinese steel companies like Baosteel have already made major joint-venture investments to acquire and develop iron-ore mines in Australia and Brazil.

But a better option was suggested very recently by B. Muthuraman, the dynamic managing director of Tata Steel and one of India’s most outstanding techno-managers. In a round-table discussion between Indian steel exporters and the China Iron and Steel Association organized by the Confederation of Indian Industry on October 17 at Beijing, he advocated a joint venture to produce semi-finished steel in India and finished steel in China. This way the legitimate concern that we should export value-added and not just natural resources gets addressed. It also ensures China’s security of iron ore supply. In the last two years a number of steel joint ventures between Chinese companies on the one hand and Japanese, German and South Korean companies on the other have been announced and launched. The Muthuraman proposal is a “win-win” proposition for both countries and should be actively pursued by our government.

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