In a double whammy for hapless Indian steel producers hit by dumping of cheap products from China, Korea, Japan and Russia, Chinese steel producers have now slashed their already low product prices to make the most out of a devalued yuan.
The Indian government has increased import duty on base metals, including iron and steel, by 2.5 per cent in a knee-jerk reaction to a 4 per cent devaluation of China's currency yuan.
Chinese steel mills, however, have already cut export prices in a move that would further hit steel producers in India already battling cheap Chinese imports, which may further increase after the currency devaluation by China.
Some small Chinese mills have already lowered export prices of steel products like rebar for construction use, by $5-10 a tonne, steel industry officials said.
In fact, the devaluation was meant to support falling exports from China and make imports non-competitive.
Faced with dwindling exports, the Chinese central bank on Tuesday decided to devalue its currency, following which the yuan has fallen 3.6 per cent in two days
The subsequent reduction in prices by Chinese steel producers provide enough evidence that Beijing's devaluation was meant to help companies boost sales.
China's steel industry, the world's biggest, is faced with shrinking demand both at home and abroad and mills are now shipping record amounts abroad, even at a loss, say observers.
India on Wednesday raised the basic customs duty on flat-rolled steel products to 12.5 per cent from 10 per cent while raising import duties on iron and non-alloy steel ingots, bars, rods, wires of stainless steel, semi-finished products of iron to 10 per cent.
But, steel producers say this is not enough as the move is unlikely to offer any protection to steel companies. The duty hike is marginal and incremental. Also, it will not apply to items from free trade agreement (FTA) countries (that excludes China) from where Indian steel producers are facing the threat of imports. The earlier duty hike was also not applicable to FTA countries.
A weaker yuan makes Chinese steel products even cheaper overseas as Beijing's surprise move to devalue its currency gives the country's exporters leeway to cut prices.
Steel mills in China's top steel producing city, Tangshan, now export semi-finished steel products at around $295 per tonne, less than half the price Indian steel mills charge consumers.
Against this, the price of hot rolled coil (HRC), the benchmark steel product, is anywhere around Rs39,500 a tonne (over $600/tonne). Steel prices in India are expected to go up further on the back of rising input costs, including iron ore, coal, electricity etc
India's steel imports jumped 72 per cent in the fiscal year to end-March to 9.3 million tonnes, with China accounting for about a third of the total.
During the first quarter of the current fiscal (April-June 2015-16) India's steel imports from China rose 49 per cent from a year ago to 723,000 tonnes, according to government data.