Reining in the alloys

The government has been tinkering with the import regime for iron and steel since the beginning of this year. In January, the Federal Government imposed 15 percent regulatory duty on the import of wire rods, steel bars and billets.
That move was prompted by a recent spike in imports of these items. In an earlier column entitled “Steel imports: choice between growth and protectionism”, BR Research highlighted that “in recent months, scrap imports as a proportion of total metal group imports have stalled while iron and steel imports have risen”.
It was argued that lower prices in China had coupled with strong Pakistani Rupee “to make imports more lucrative than domestic production since October 2014”. The hike in RD was decried by importers of wire rods, billets and bars but integrated steel mills (the big boys of the sector) bantered for an even higher rate to protect domestic manufacturing.
Despite the contentions of importers, the higher RD rate went into effect from February. But that gave rise to a new trend. As pointed out in the article, “Hot and rolling” published in these columns on 8 May, 2015; the higher RD was not applicable on steel alloys. Resultantly, scarcely used HS codes like HS7227, became frequently used by importers.
As that piece pointed out, the reason for this surge was that exporters started adding trace amounts of boron, titanium and other materials to hot rolled steel coils, to be able to export these under HS codes used for alloys; thus avoiding higher RD on steel and iron products.
Other countries took notice of the situation, slapping licensing regimes and other trade barriers on the import of steel alloys. Now, Pakistan has also wizened up. On 30 June, 2015, the Ministry of Finance slapped 10 to 25 percent regulatory duty on all alloys and steel angles.
The move came on the back of recommendations by Pakistan Steel Mills which requested higher RD rates on steel and affiliated products along with a hefty sum of cash to help bail out the white elephant for the umpteenth time.
But the higher RD comes with its own set of lacunas and opportunities for malpractice. Approved manufacturers of fans are exempted from the regulatory duty of 25 percent on silicon steel. That means, such firms may be able to import material declared as their own input and sell into the market at a significantly lower cost than commercial importers.
All said the latest hike in RD rates should provide some support to PSM’s ability to market whatever steel alloy production it is able to muster up. It has also addressed a lacuna that was denying the national exchequer its due, while filling the market with relatively under priced materials. On the other hand, the added cost will jack up rates in the domestic market; although the extent of this rise is yet to be seen.