Parity between domestic and imported HRC prices are narrowing down; with possibility of safeguard duty domestic prices may find support.
The influx of cheap HRC imports in Indian market, especially since last six months, has given sleepless nights to domestic players. The domestic HRC prices have fallen by about 20%. However, it is still higher than the net landed cost of imports.
Now the big question is whether this import parity pricing is acting as a constraint for domestic players or is it promoting competition in the market where steel players are enjoying high profits by charging premium prices?
Import Parity Pricing (IPP)
IPP is defined as the price that a purchaser pays for imported goods which includes CNF import price, basic customs duty, countervailing duty (CVD) and transport cost to purchaser’s locations.
HRC Size: Domestic 2.5 mm & Imports 2 mm
Domestic Prices: Ex- Yard Prices Incld Excise of 12.5%
Net Landed Import: CIF + Custom Duty + CVD + Port Handling + Local transportation
Source: SteelMint Research
In the above graph, average prices of HRC (2 mm, CR quality) from China, Japan and Korea and average USD rate on per month basis have been considered. Net landed cost (ex-importer’s yard) and domestic prices (ex-factory yard) of same quality have been calculated.
It can be observed that net landed cost of imports for the month of August is INR 31,500/MT (for which bookings were made in June-July), whereas average domestic HRC price for August is INR 32,500/MT. Thus, there is parity of INR 1,000/MT between two prices.
Through trade sources, current offers from China are assessed in the range of USD 320-325/MT, CNF India basis, whereas offers from Korea and Japan are at around USD 360-365/MT CIF India. Current import duty on Chinese HRC is 12.5%; whereas, Japan and Korea attract 0.8 and 1.25% respectively.
If today an importer booked orders at this price, the same will land in late September or early October and the net landed cost of import will be INR 29,000/MT. In order to compete with this price, domestic players would have to further lower their prices from current levels of INR 32,500/MT. However, with the news of safeguard duty doing rounds, the net landed cost of imports will be higher than the above mentioned cost.
In this price war, it is to be seen how much price cut is viable for domestic players. It is anticipated that the price cut in domestic offers will stop at a level beyond which steel players will fail to cover their variable costs.
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