Make in India- tackling the Chinese threat: Domestic Met Coke industry on the verge of extinction

coal1st December 2014, KolkataThe Indian Met Coke Manufacturers’ Association (IMCOM) appeals for raising the import duty on met coke to at least 20%.IMCOM calls for urgent measures to ensure its survival.

 

Steel is crucial to the development of any modern economy and is considered to be one of the backbones of human civilisation. Per capita consumption of steel is treated as an important index of the level of socio-economic development in a country. Met Coke is one of the most critical raw materials for production of Steel. Thus, being a major raw material for steel, the role being played by met coke industry is of significant importance in the economic and industrial landscape of the country.

 

The demand of met coke comes from steel producers (other than integrated steel mills), chemical industries & foundries, ferro alloys etc, and is met by merchant met coke manufacturers in India. The installed capacity of merchant met coke is around 10 million tonnes per annum in India and it provides sustenance to over 10 lakh people in the country with an investment of around 30 thousand crore.

 

The industry is currently battling against twin odds:

1) indiscriminate dumping by China and

2) an inverted duty structure further to the announcements in the last budget.

While concerns related to dumping are being taken up by the domestic industry body as per the prescribed procedures separately, the industry urges the government to correct the anomalies in duty structure on an immediate basis to ensure its survival.

 

Brief background to indiscriminate Chinese dumping to present the actual nature of injury

In 1997-98, indiscriminate dumping of cheap coke by China had led to a situation, which threatened the existence of met coke industry in the country. However, due to the anti dumping duty imposed in 1998, the domestic industry could survive and also grow to some extent which allowed the country to become partially self-sufficient rather than being fully dependent on China. The actual Chinese intentions became clear when in 2004, within a short period of time (after dumping cheap and attempting to kill local industry), Chinese coke makers increased the price of coke from USD 70-80 to USD 400-480 per tonne. The experience of 2004 made the domestic steel and met coke industry understand the sinister Chinese design and as a result, industry in general worked towards becoming more self-reliant on Coke rather than being dependent on China.

 

Now, history is being repeated. Currently, China has started dumping again. In 2004, China had put up an export duty that was initially fixed at 5%, increased to 15% later and subsequently raised to 40% in 2008. This duty was brought down to zero in January 2013. Since then Chinese coke has started flooding the Indian market. According to Resource-Net, a leading global observer of carbon products, Chinese coke industry has over capacity and is making sales at below cost. This has left the industry reeling severely under stress and major coke producers like Gujarat NRE Coke Ltd, Saurasthra Fuels have already have been referred to CDR simply because market price of coke is at times even lower than the variable cost of production. Similar is the story with other coke manufacturers who are under severe financial stress. Underlining the Chinese invasion in domestic coke industry, Resource-Net further states in its recent report, “Indian coke imports in the first half were 2.2m tonnes, of which half came from China. End-users are buying Chinese coke instead of domestic production.”

 

Edwin Yeo, steel making raw materials expert of Platts observes, “Chinese metallurgical coke became a key feature in seaborne market after the removal of export tariffs in 2013. Export volumes from China between January and September 2014 have more than doubled year-on-year to 5.78 million, almost a third of which has come to India. Spot prices for coke on a delivered basis to India have also witnessed a dramatic decline. Amidst the onslaught of competitively priced Chinese coke, Indian producers tell Platts they are under tremendous pressure.”

 

Inverted Duty Structure consequent to recent budget for FY 2014-2015:

A couple of years ago, a Clean Energy Cess of Rs.50 per tonne on coal was imposed by then Finance Minister.  In the recent budget, this Clean Energy Cess on coal has been enhanced from Rs.50 per tonne to Rs.100 per tonne on all types of coal including Coking Coal.  This has a direct impact of Rs.140 per tonne of Metallurgical Coke produced domestically (as one requires 1.4 tonne Coking Coal to make 1 tonne of Metallurgical Coke), whereas, there is no such “Clean Energy Cess” on Metallurgical Coke.

 

Historically, Coking Coal has been enjoying complete exemption of import duty since 1978 as India does not have reserves of Coking Coal to meet its requirement. However, in an endeavour to rationalize the duty structure on all varieties of Thermal Coal/ Coking Coal/Met Coke, a duty of 2.5% has also been imposed on Coking Coal. Thus the duty structure, as it stands today, is working on the reverse principle of Inverted duty structure.

 

Appeal

The import duty on met coke also stands at 2.5% today, same as that of coking coal. As per simple logic, the import duty on met coke should be higher than that of coking coal since it is a value added product and the value addition is being done in the country by domestic Industry. This is an appeal to save the domestic merchant met coke industry:

  • to be able to feed over 10 lakh mouths and to save a few lakhs of employment that this Industry provides;
  • to save an investment of around 30 thousand crore made by the domestic industry;
  • from an untimely death in face of severe Chinese onslaught of dumping of met coke in Indian market whose easy access is allowed by low import duty of met coke (finished product);
  • and more so to maintain the difference in custom duty between raw material (coking coal) and locally manufactured end use product (met coke) keeping in line with The Honourable Prime Minister’s ‘Make in India’ campaign.

The domestic met coke industry under the aegis of Indian Metallurgical Coke Manufacturer’s Association, urges the government to raise import duty on met coke to at least 20%.