As the Indian government yesterday announced MIP on 173 steel products ranging from USD 341-USD 752 which is valid for six months from the date of notification i.e. 5 Feb’16 let us understand what is MIP and its impact on flat steel industry.
What is MIP?
MIP (Minimum Import Price) is the price fixed by the government below which imports will not be allowed in to India irrespective of prices in the international market.
For example, if current HRC price from China is at USD 295-300/MT, any importer based in India will have to import HRC at USD 445/MT i.e. at MIP fixed by government. Also all the duties will be levied on the fixed MIP.
Impact of MIP on Landed Cost of Import of HRC”
The table below shows the impact of MIP if the government discontinues safeguard duty on HRC or if it decides to continue safeguard duty of 20% on HRC.
|
China |
Without Safeguard Duty of 20% on HRC |
With Safeguard duty of 20% on HRC |
||
| Particulars | Cost in Rs. | Cost in Rs. | Cost in Rs. |
Cost in Rs. |
| CIF (USD/MT) | 295 | 445 | 295 | 445 |
| Exchange rate | 68 | 68 | 68 | 68 |
| CIF in INR/MT) | 20,060 | 30,260 | 20,060 | 30,260 |
| Assesseable value | 20,261 | 30,563 | 20,261 | 30,563 |
| BCD @ 12.5% | 2,533 | 3,820 | 2,533 | 3,820 |
| Safeguard duty | 0 | 0 | 4,052 | 6,113 |
| Countervailing duty @ 12.5% | 2,849 | 4,298 | 2,849 | 4,298 |
| Central Excise Education cess | 108 | 162 | 108 | 162 |
| Customs Education cess | 54 | 81 | 54 | 81 |
| Total | 25,804 | 38,924 | 29,856 | 45,037 |
| Interest cost | 250 | 250 | 250 | 250 |
| Warehouse charges | 500 | 500 | 500 | 500 |
| Port Handling charges | 1,200 | 1,200 | 1,201 | 1,201 |
| Total Landed cost of Import | 27,754 | 40,874 | 31,807 | 46,988 |
| Domestic Prices in INR/MT | 29,000 | 29,000 | 29,000 | 29,000 |
| Landed costs in USD/MT | 408 | 601 | 468 | 691 |
| (Premium/Discount) | 1,246 | -11,874 | -2,807 | -17,988 |
Source: SteelMint Research
Domestic prices are taken as average price in 4 major cities
From the above table if landed cost of import from China without safeguard duty is USD 421/MT after MIP it will increase to USD 619/MT thus making imports costlier whereas if safeguard duty on HRC continues, then the landed cost of import without MIP is USD 482/MT which will increase to USD 712/MT.
It can also be inferred from above table that with MIP imposition, Indian steel manufacturers now have enough scope to increase its domestic prices and cover their increasing losses.
MIP Exemptions
1. In the MIP notification issued by government, API grade steel conforming to X-52 and higher API grades steel used for manufacturing of steel pipes are exempted from MIP imposition.
2. Also, all those imports/shipments under Letter of Credit already entered into before the date of this notification is exempted from MIP.
3. Imports under Advance License scheme are also exempted from MIP. An advance license is issued under Duty Exemption Scheme of India’s EXIM policy, which allows duty-free import of any input for goods production meant for export purpose.
Imports from Jan’15 to Jan’16 Under HS Codes 7208 & 7209
Industry Opinion
Indian steel industry is rejoicing on MIP imposition. “Domestic flat steel prices will increase in the range of INR 1,000-1,500/MT in the near term and may be higher than this in coming future”, quoted a SAIL executive.
“Only Secondary importers will have to bear the burnt of MIP as big giants like POSCO-Maharashtra will continue to enjoy cheaper imports under Advance license scheme”, quoted a Mumbai based importer.
Few of the market participants even showed their concern on the likeliness of increase in illegal trade activities after MIP imposition as importers might show over-valued invoices in order to procure cheap imports.
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