The Minimum Import Price (MIP) levied on steel products is likely to check cheap shipments but will provide only temporary relief to the domestic industry, ratings agency ICRA said on Friday.
ICRA also said it expects domestic steel prices to recover in the coming months because of a large differential between MIP and current import offers.
The agency added it "expects MIP to provide a temporary relief to domestic steel industry, while the extent of cheaper steel imports is likely to reduce, given that MIP covers a wide spectrum of steel products."
However, the magnitude of price increase by steel players is not expected to be as sharp as the price differential on account of an adverse demand-supply equation that the industry is likely to face in the short to medium term, it said.
In a recent report, ICRA added: "Also, large integrated players having stronger financial profile are likely to take this as an opportunity to moderately increase prices and grab a greater market share from their weaker competitors."
ICRA’s Senior VP and Co-Head Corporate Sector Jayanta Roy said that India’s steel consumption growth improved to 4.4 per cent during April-December 2015 from 3.1 per cent in 2014-15 driven by automobile and construction sectors.
However, the growth pattern remains uneven, which puts a question mark over the sustainability of demand improvement, he added.
Domestic steel production, on the other hand, de-grew by 1.8 per cent during April-December 2015, with integrated steel producers reporting a 1 per cent contraction in production during the same period, he said.
Steel exports contracted by 29.7 per cent during the last nine months of 2015, whereas growth in imports moderated to an extent to 29.2 per cent, following imposition of a safeguard duty of 20 per cent on certain hot-rolled steel products in September 2015, Roy added.
On raw materials, he said that given the headwinds in the seaborne market for iron ore and the weak demand from domestic steel companies, iron ore-miner NMDC continued to cut iron ore prices in the third quarter of 2015-16 as well, revising price of lumps by 12 per cent in October 2015.
In December 2015 again, lump prices were reduced by a sharper 16 per cent.
The correction in December marks the tenth rate cut initiated by the state-run miner since November 2014 with prices of fines declining by 51 per cent and lumps by 52 per cent during the period.
"While iron ore supplies in India have improved in the current year, its demand remains weak on the back of a de-growth in finished steel production, and this would keep iron ore prices under check in the near term," Roy said.
Also, with benchmark premium hard coking coal contract price in January-March of calendar 2016 being settled at USD 81 per tonne, a 9 per cent quarter-on-quarter decline, these corrections would provide a relief to blast furnace players, he added.