Indian steel pipe makers, hurt by a 10% export duty, could shift their production out of the country.
India is a major exporter of steel pipes, particularly to companies in West Asia and the US such as Exxon Mobil Corp., Chevron Corp. and Saudi Aramco, and caters to one-third of the global demand.
Lion’s share : India is a major exporter of steel pipes, particularly to companies in West Asia and the US such as Exxon Mobil Corp., Chevron Corp. and Saudi Aramco, and caters to one-third of global demand
But with the tax, on top of a near 40% rise in steel prices in the past six months, steel pipe makers say they would need to make the pipes overseas to remain competitive.
“We were already planning to expand capacity of our Sharjah (UAE) plant to 300,000 tonnes per annum from 75,000 tonnes, but the export duty notification has made us expedite the plan,” Ashok Punj, managing director of PSL Ltd, said by phone. “We expect to complete the expansion in next 12 to 16 months.”
When the notification on the duty was issued, less than 2.5% of the company’s total orders were from exports. “But we plan to supply a majority of the export orders from our plants in those countries to retain competitive advantage,” Punj said. PSL has plants in Sharjah and the US.
“If this (export duty) continues over the long term, then one way to get around it would be to get to the market they are servicing... or being closer to those markets,” said Prasanto Sengupta, director of corporate finance at consulting firm KPMG. “I don’t see manufacturers immediately shifting base if they have huge capex in India, but if it (the duty) continues over a long term, they might just have to.”
On 10 May, the government, in an attempt to contain soaring inflation, issued a notification that brought 15 categories of steel products liable to pay a 10-15% export tax. The finance minister had announced the levies on 29 April. The companies are lobbying hard to get the finance ministry to roll back the duty on steel pipes, arguing that they import most of the steel used in making pipes and, thus, export could not have added to inflation.
“We did not believe that the government will impose such a high export duty on steel pipes,” said a senior executive with Welspun Gujarat Stahl Rohren Ltd. This person, who did not want to be identified as he is not authorised to speak with the media, said the duty gives steel pipe makers in Europe and Japan a competitive advantage over Indian firms.
“The contracts we have entered into with foreign companies are fixed, and do not give us an option to renegotiate for the price increase from the export duty,” he said. “If we are not able to deliver, we will have to pay a penalty.”
Steel pipe makers such as Jindal Saw Ltd and Maharashtra Seamless Ltd export 25-40% of their output, while Man Industries Ltd and Welspun export about 80% every year.
“We are already planning a plant in the US with a capacity of 300,000 tonnes per annum,” said K.G. Mantri, senior vice-president of corporate affairs at Man Industries. The US plant will be completed by June 2009, Mantri said.
The company plans to increase its focus on Indian markets if the export duty is not rolled back, Mantri said. He added that the company would have to renegotiate its contracts if the government persists with the export tax.
Demand for steel pipes is expected from West Asia and other Asian countries, which account for 45% of the global demand, followed by North America at 33% and Europe at 16%, according to industry experts. This demand is expected to grow significantly, and Indian companies are already considering capacity expansions. Jindal Saw plans to increase its annual capacity to 1.95 million tonne, or mt, by the end of 2008, from 1.25mt. Man Industries plans to increase capacity in India to 1mt by June from 800,000 tonne.
Monday, June 02, 2008
Indian banks ready to take on foreign players
Indian bankers say they are ready to take on competition from foreign banks, even if the multinational players are allowed to operate freely after April. A Reserve Bank of India (RBI) road map on operations of foreign banks in India would allow more of them to operate in the country with fewer restrictions, starting next year, in line with India’s commitment to the World Trade Organization to open up its financial sector to foreign players.
At the Mint South Banking Conclave II held in Bangalore on Friday, given the change expected in the banking climate, the discussion centred around “Why do we need so many banks? Balancing inclusion and competitiveness.”
The chiefs of four public sector banks—Corporation Bank, Canara Bank, Vijaya Bank and Indian Bank—and three private banks—Karur Vysya Bank Ltd, Karnataka Bank and City Union Bank—participated in a lively discussion where they said the arrival of new players will only encourage them to improve their offerings and services. As per the road map, foreign banks may be allowed to raise their stake to 74% in their Indian operations.
While welcoming competition, Indian bankers wanted the opening up to be reciprocal.
“If a foreign bank wants to open its branches and ATMs across India, we should also be allowed to do the same in their nation,” said B. Sambamurthy, chairman and managing director, Corporation Bank. He said in Singapore, for instance, where Indian Bank has been operating a branch for 60 years, it was not allowed to open ATMs.
RBI deputy governor V. Leeladhar was the guest of honour at the event, where some of the domestic issues in banking took centre stage. There were mixed views on the Union government’s ambitious plan to waive off about Rs72,000 crore in loans to small and marginal farmers, which is widely seen as a populist move ahead of next year’s general elections. The process of loan waiver kicks in this month and while bankers at state-owned banks said it was a welcome move, some of the chiefs of private sector banks demurred.
P.T. Kuppuswamy, chairman and CEO, the Karur Vysya Bank, said: “In the last six-nine months, many accounts in our rural branches were shifting to nationalized banks. This is because people were hoping that as this is an election year, there would be write-offs!” He added that such write-offs penalize those who repay their credit diligently.
Others were more sanguine about the waiver, the largest ever in India.
“This kind of waiver will not happen every two-three years. It’s a social obligation,” said Prakash P. Mallya, CMD, Vijaya Bank, defending the move. Mallya said the initiative will not diminish the culture of repaying loans.
India has 177 banks with more than 73,000 branches. Still, only about 60% of adult population has bank accounts. Bankers say that with the number of branches per 10,000 people being 0.5 in India, compared with two globally, they are neither over-branched nor over-banked. Also, a large number of people in the country are not aware of banking facilities and still go to traditional money lenders for loans.
The bankers felt that in addition to opening branches, they also needed more innovative ways of reaching out to people as opening a branch entails substantial investment in infrastructure.
Canara Bank CMD M.B.N Rao said there are nearly 150,000 post offices in the country and these could be better leveraged. Indian Bank’s chairman and managing director M.S. Sundara Rajan said technology was a key enabler, which helps in reaching out to people without actually opening branches. This could be done through kiosks.
With microfinance institutions reporting 99% recovery rates, banks say they know that the poor are bankable. Vijaya Bank’s Mallya said financial inclusion is not about lending a small amount of money to the poor, but also serving them with a full package of services, including home loans, education loans, vehicle loans and pension products.
On the question of Indian banks being ready for consolidation, they had mixed feelings. City Union Bank chief S. Balasubramanian said different sizes of banks should exist to take care of the needs of different segments of customers.
RBI deputy governor Leeladhar said India does not need large number of small commercial banks. “We need small numbers of large banks. There could be healthy competition between large banks,” he said. He added that for overall financial inclusion, regional rural banks (RRBs) and other cooperative bodies should be strengthened and that the onus for doing that lies with the commercial banks.
At the Mint South Banking Conclave II held in Bangalore on Friday, given the change expected in the banking climate, the discussion centred around “Why do we need so many banks? Balancing inclusion and competitiveness.”
The chiefs of four public sector banks—Corporation Bank, Canara Bank, Vijaya Bank and Indian Bank—and three private banks—Karur Vysya Bank Ltd, Karnataka Bank and City Union Bank—participated in a lively discussion where they said the arrival of new players will only encourage them to improve their offerings and services. As per the road map, foreign banks may be allowed to raise their stake to 74% in their Indian operations.
While welcoming competition, Indian bankers wanted the opening up to be reciprocal.
“If a foreign bank wants to open its branches and ATMs across India, we should also be allowed to do the same in their nation,” said B. Sambamurthy, chairman and managing director, Corporation Bank. He said in Singapore, for instance, where Indian Bank has been operating a branch for 60 years, it was not allowed to open ATMs.
RBI deputy governor V. Leeladhar was the guest of honour at the event, where some of the domestic issues in banking took centre stage. There were mixed views on the Union government’s ambitious plan to waive off about Rs72,000 crore in loans to small and marginal farmers, which is widely seen as a populist move ahead of next year’s general elections. The process of loan waiver kicks in this month and while bankers at state-owned banks said it was a welcome move, some of the chiefs of private sector banks demurred.
P.T. Kuppuswamy, chairman and CEO, the Karur Vysya Bank, said: “In the last six-nine months, many accounts in our rural branches were shifting to nationalized banks. This is because people were hoping that as this is an election year, there would be write-offs!” He added that such write-offs penalize those who repay their credit diligently.
Others were more sanguine about the waiver, the largest ever in India.
“This kind of waiver will not happen every two-three years. It’s a social obligation,” said Prakash P. Mallya, CMD, Vijaya Bank, defending the move. Mallya said the initiative will not diminish the culture of repaying loans.
India has 177 banks with more than 73,000 branches. Still, only about 60% of adult population has bank accounts. Bankers say that with the number of branches per 10,000 people being 0.5 in India, compared with two globally, they are neither over-branched nor over-banked. Also, a large number of people in the country are not aware of banking facilities and still go to traditional money lenders for loans.
The bankers felt that in addition to opening branches, they also needed more innovative ways of reaching out to people as opening a branch entails substantial investment in infrastructure.
Canara Bank CMD M.B.N Rao said there are nearly 150,000 post offices in the country and these could be better leveraged. Indian Bank’s chairman and managing director M.S. Sundara Rajan said technology was a key enabler, which helps in reaching out to people without actually opening branches. This could be done through kiosks.
With microfinance institutions reporting 99% recovery rates, banks say they know that the poor are bankable. Vijaya Bank’s Mallya said financial inclusion is not about lending a small amount of money to the poor, but also serving them with a full package of services, including home loans, education loans, vehicle loans and pension products.
On the question of Indian banks being ready for consolidation, they had mixed feelings. City Union Bank chief S. Balasubramanian said different sizes of banks should exist to take care of the needs of different segments of customers.
RBI deputy governor Leeladhar said India does not need large number of small commercial banks. “We need small numbers of large banks. There could be healthy competition between large banks,” he said. He added that for overall financial inclusion, regional rural banks (RRBs) and other cooperative bodies should be strengthened and that the onus for doing that lies with the commercial banks.
India's GDP Growth Holds at Slowest Pace Since 2005
India's economic growth held at the weakest pace since 2005 as the highest interest rates in six years discouraged consumer spending and investment.
Asia's third-largest economy expanded 8.8 percent in the three months to March 31 from a year earlier, matching the revised gain of the previous quarter, the statistics office said in a statement in New Delhi today.
Finance Minister Palaniappan Chidambaram today urged policy makers to ensure they don't damp economic growth as they try to slow inflation, which has doubled in the past four months to 8.1 percent. India's central bank has twice forced lenders to set aside more reserves in 2008, after raising its key interest rate seven times in the past 2 1/2 years to 7.75 percent.
``The dilemma between rising inflation and slowing growth will continue and we expect the central bank to tighten monetary policy,'' said Sonal Varma, a Mumbai-based economist at Lehman Brothers LLC. ``The growth momentum is slowing.''
Lehman cut India's growth forecast to 7.3 percent for this year from 7.6 percent.
The Sensitive index, which has declined 20 percent this year, rose 0.8 percent to 16452.90. The benchmark 10-year government bond fell, pushing the yield close to a one-month of 8.11 percent. The rupee climbed to the highest in more than two weeks, gaining 0.7 percent to 42.49 a dollar.
India's economy expanded 9 percent in the year ended March 31, the least since 2005, today's report said. Growth may slow further to about 8.5 percent in the current financial year, Chidambaram told reporters in New Delhi today.
Manufacturing Slows
Manufacturing growth almost halved to 5.8 percent in the three months to March 31, while farm production slowed to 2.9 percent. Growth is holding up as construction gained 12.6 percent, the fastest pace in almost two years, as the government stepped up efforts to build new airports, roads and power plants.
Still, India is unwilling to risk higher inflation ahead of national elections due by May 2009, analysts said. Prime Minister Manmohan Singh's Congress party has already lost ground in nine of 11 provincial polls held since January 2007 as rising prices of rice, lentils and other staples hurt the 52 percent of India's 1.1 billion people who live on less than $2 a day.
Growth is important to reduce poverty in India, said Sanjay Peters, an economics professor at ESADE Business School in Barcelona. Reining in inflation at the cost of growth is an ``unviable justification,'' he added.
Overseas Borrowings
``We must ensure that the instrument of interest rates moderate inflation and at the same time does not dampen growth,'' Chidambaram said today. ``We have to ensure industrial growth does not slacken.''
To boost growth, the finance ministry yesterday raised the limit on overseas borrowing by companies for domestic spending. Infrastructure companies can borrow as much as $100 million overseas, up from a previous limit of $20 million, while other companies can borrow as much as $50 million, compared with an earlier cap of $20 million.
India's expansion, to be sure, is still the second-fastest after China among the world's major economies, spurred by rising incomes. The South Asian country is growing at more than three times the pace of the U.S. and the nations sharing the euro.
The Reserve Bank of India, whose priority is to keep prices in check, has increased the cash reserve ratio, or the proportion of deposits lenders must set aside, seven times since December 2006 to slow money supply and cool inflation.
`All Options'
That's yet to put a dent in India's inflation rate, which is now the highest in more than 3 1/2 years. The Federation of Indian Chambers of Commerce and Industry say relying on monetary tools isn't the correct way to tackle inflation, which is ``largely driven by supply-side factors.''
Inflation may accelerate further as Oil Minister Murli Deora yesterday said the government will consider ``all options,'' including an increase in fuel prices, to cut losses at state-run refiners that have risen to more than $1 billion a week as crude oil costs soar.
``It is supply shortage that is aggravating inflation in the case of food products, and the inflationary pressure in the case of manufactured products is the result of continuous cost buildups of raw materials and oil products,'' the trade body said in a report on May 24. ``Rising interest rates, besides curtailing demand, are also adding to the cost of companies.''
Cars, Motorcycles
Tata Motors Ltd.'s profit in the year ended March 31 gained at the slowest pace in at least five years as steel and other input costs increased and consumer demand diminished. Bajaj Auto Ltd., India's second-biggest motorcycle maker, expects sales to remain sluggish this year. Industry accounts for a quarter of India's $912 billion economy.
``The year ahead is a challenging year,'' said C. Ramakrishnan, chief financial officer at Tata Motors, the Indian automaker that's buying Ford Motor Co.'s Jaguar and Land Rover units. ``High interest rates, raw material costs and credit availability continue to be challenges.''
As industry slows, demand for services such as travel and banking, which make up 55 percent of the economy, may also wane. Airbus SAS, the world's largest planemaker, said this week that India is among the weakest airliner markets right now and the country's carriers may cancel or delay plane orders in the next 12 months.
Asia's third-largest economy expanded 8.8 percent in the three months to March 31 from a year earlier, matching the revised gain of the previous quarter, the statistics office said in a statement in New Delhi today.
Finance Minister Palaniappan Chidambaram today urged policy makers to ensure they don't damp economic growth as they try to slow inflation, which has doubled in the past four months to 8.1 percent. India's central bank has twice forced lenders to set aside more reserves in 2008, after raising its key interest rate seven times in the past 2 1/2 years to 7.75 percent.
``The dilemma between rising inflation and slowing growth will continue and we expect the central bank to tighten monetary policy,'' said Sonal Varma, a Mumbai-based economist at Lehman Brothers LLC. ``The growth momentum is slowing.''
Lehman cut India's growth forecast to 7.3 percent for this year from 7.6 percent.
The Sensitive index, which has declined 20 percent this year, rose 0.8 percent to 16452.90. The benchmark 10-year government bond fell, pushing the yield close to a one-month of 8.11 percent. The rupee climbed to the highest in more than two weeks, gaining 0.7 percent to 42.49 a dollar.
India's economy expanded 9 percent in the year ended March 31, the least since 2005, today's report said. Growth may slow further to about 8.5 percent in the current financial year, Chidambaram told reporters in New Delhi today.
Manufacturing Slows
Manufacturing growth almost halved to 5.8 percent in the three months to March 31, while farm production slowed to 2.9 percent. Growth is holding up as construction gained 12.6 percent, the fastest pace in almost two years, as the government stepped up efforts to build new airports, roads and power plants.
Still, India is unwilling to risk higher inflation ahead of national elections due by May 2009, analysts said. Prime Minister Manmohan Singh's Congress party has already lost ground in nine of 11 provincial polls held since January 2007 as rising prices of rice, lentils and other staples hurt the 52 percent of India's 1.1 billion people who live on less than $2 a day.
Growth is important to reduce poverty in India, said Sanjay Peters, an economics professor at ESADE Business School in Barcelona. Reining in inflation at the cost of growth is an ``unviable justification,'' he added.
Overseas Borrowings
``We must ensure that the instrument of interest rates moderate inflation and at the same time does not dampen growth,'' Chidambaram said today. ``We have to ensure industrial growth does not slacken.''
To boost growth, the finance ministry yesterday raised the limit on overseas borrowing by companies for domestic spending. Infrastructure companies can borrow as much as $100 million overseas, up from a previous limit of $20 million, while other companies can borrow as much as $50 million, compared with an earlier cap of $20 million.
India's expansion, to be sure, is still the second-fastest after China among the world's major economies, spurred by rising incomes. The South Asian country is growing at more than three times the pace of the U.S. and the nations sharing the euro.
The Reserve Bank of India, whose priority is to keep prices in check, has increased the cash reserve ratio, or the proportion of deposits lenders must set aside, seven times since December 2006 to slow money supply and cool inflation.
`All Options'
That's yet to put a dent in India's inflation rate, which is now the highest in more than 3 1/2 years. The Federation of Indian Chambers of Commerce and Industry say relying on monetary tools isn't the correct way to tackle inflation, which is ``largely driven by supply-side factors.''
Inflation may accelerate further as Oil Minister Murli Deora yesterday said the government will consider ``all options,'' including an increase in fuel prices, to cut losses at state-run refiners that have risen to more than $1 billion a week as crude oil costs soar.
``It is supply shortage that is aggravating inflation in the case of food products, and the inflationary pressure in the case of manufactured products is the result of continuous cost buildups of raw materials and oil products,'' the trade body said in a report on May 24. ``Rising interest rates, besides curtailing demand, are also adding to the cost of companies.''
Cars, Motorcycles
Tata Motors Ltd.'s profit in the year ended March 31 gained at the slowest pace in at least five years as steel and other input costs increased and consumer demand diminished. Bajaj Auto Ltd., India's second-biggest motorcycle maker, expects sales to remain sluggish this year. Industry accounts for a quarter of India's $912 billion economy.
``The year ahead is a challenging year,'' said C. Ramakrishnan, chief financial officer at Tata Motors, the Indian automaker that's buying Ford Motor Co.'s Jaguar and Land Rover units. ``High interest rates, raw material costs and credit availability continue to be challenges.''
As industry slows, demand for services such as travel and banking, which make up 55 percent of the economy, may also wane. Airbus SAS, the world's largest planemaker, said this week that India is among the weakest airliner markets right now and the country's carriers may cancel or delay plane orders in the next 12 months.
Subscribe to:
Posts (Atom)